UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

x Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended: March 31, ~~2022~~2023

¨ Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from _________ to _________

Commission File Number: 001-34767

CLARUS CORPORATION

(Exact name of registrant as specified in its charter)

Delaware

58-1972600

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification Number)

2084 East 3900 South

Salt Lake City, Utah

84124

(Address of principal executive offices)

(Zip code)

(801) 278-5552

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:



Title of each class	Trading Symbol	Name of each exchange on which registered
Common Stock, par value $.0001 per share	CLAR	NASDAQ Global Select Market

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer	¨	Non-accelerated filer	¨

Accelerated filer	x	Smaller reporting company	¨

		Emerging growth company	¨

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x

As of ~~May 4, 2022,~~April 26, 2023, there were ~~37,224,109~~37,190,302 shares of common stock, par value $0.0001, outstanding.

INDEX

CLARUS CORPORATION


PART I	FINANCIAL INFORMATION	Page
Item 1.	Financial Statements (Unaudited)

	Condensed Consolidated Balance Sheets – March 31, ~~2022~~2023 and December 31, ~~2021~~2022	3
	Condensed Consolidated Statements of Comprehensive Income – Three months ended March 31, ~~2022~~2023 and ~~2021~~2022	4
	Condensed Consolidated Statements of Cash Flows – Three months ended March 31, ~~2022~~2023 and ~~2021~~2022	5
	Condensed Consolidated Statements of Stockholders’ Equity – Three months ended March 31, ~~2022~~2023 and ~~202~~20221	6
	Notes to Condensed Consolidated Financial Statements	7
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	2321
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	3129
Item 4.	Controls and Procedures	3129

PART II	OTHER INFORMATION

Item 1.	Legal Proceedings	3230
Item 1A.	Risk Factors	3230
Item 6.	Exhibits	3331
Signature Page		3432

PART I. FINANCIAL INFORMATION

~~ITEM~~ITEM 1. FINANCIAL STATEMENTS


CLARUS CORPORATION	CLARUS CORPORATION				CLARUS CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS	CONDENSED CONSOLIDATED BALANCE SHEETS				CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)	(Unaudited)				(Unaudited)
(In thousands, except per share amounts)	(In thousands, except per share amounts)				(In thousands, except per share amounts)

	March 31, 2022		December 31, 2021
					March 31, 2023		December 31, 2022
Assets
Current assets
Cash	$	16,451	$	19,465	$	10,310	$	12,061
Accounts receivable, less allowance for
credit losses of $1,283 and $811		69,530		66,180
credit losses of $1,437 and $1,211						68,230		66,553
Inventories		152,718		129,354		145,756		147,072
Prepaid and other current assets		12,838		11,831		9,845		9,899
Income tax receivable		258		116		3,209		3,034
Total current assets		251,795		226,946		237,350		238,619

Property and equipment, net		43,168		42,826		42,197		43,010
Other intangible assets, net		71,327		73,683		51,482		55,255
Indefinite-lived intangible assets		131,115		128,271		82,444		82,901
Goodwill		121,064		118,090		62,704		62,993
Deferred income taxes		22,456		22,433		18,168		17,912
Other long-term assets		20,157		19,578		20,414		17,455
Total assets	$	661,082	$	631,827	$	514,759	$	518,145

Liabilities and Stockholders' Equity
Current liabilities
Accounts payable	$	34,098	$	31,488	$	25,252	$	27,052
Accrued liabilities		30,176		27,473		22,125		25,170
Income tax payable		1,844		4,437		684		421
Current portion of long-term debt		12,103		9,585		12,562		11,952
Total current liabilities		78,221		72,983		60,623		64,595

Long-term debt, net		139,829		131,948		124,444		127,082
Deferred income taxes		36,892		35,280		18,226		18,506
Other long-term liabilities		23,034		21,448		18,574		15,854
Total liabilities		277,976		261,659		221,867		226,037

Stockholders' Equity
Preferred stock, $0.0001 par value per share; 5,000
shares authorized; NaN issued		-		-
shares authorized; none issued						-		-
Common stock, $0.0001 par value per share; 100,000 shares authorized;
41,272 and 41,105 issued and 37,210 and 37,094 outstanding, respectively		4		4
41,791 and 41,637 issued and 37,190 and 37,048 outstanding, respectively						4		4
Additional paid in capital		666,489		662,996		680,673		679,339
Accumulated deficit		(258,963)		(263,342)		(336,175)		(336,843)
Treasury stock, at cost		(25,537)		(24,440)		(32,825)		(32,707)
Accumulated other comprehensive income (loss)		1,113		(5,050)
Accumulated other comprehensive loss						(18,785)		(17,685)
Total stockholders' equity		383,106		370,168		292,892		292,108
Total liabilities and stockholders' equity	$	661,082	$	631,827	$	514,759	$	518,145

See accompanying notes to condensed consolidated financial statements.	See accompanying notes to condensed consolidated financial statements.				See accompanying notes to condensed consolidated financial statements.

‎


CLARUS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
(In thousands, except per share amounts)

	Three Months Ended
	March 31, 2023		March 31, 2022

Sales
Domestic sales	$	44,916	$	62,307
International sales		52,468		50,969
Total sales		97,384		113,276

Cost of goods sold		61,363		69,024
Gross profit		36,021		44,252

Operating expenses
Selling, general and administrative		32,819		34,175
Transaction costs		74		1,201
Contingent consideration (benefit) expense		(1,565)		763

Total operating expenses		31,328		36,139

Operating income		4,693		8,113

Other income (expense)
Interest expense, net		(2,746)		(1,116)
Other, net		85		(67)

Total other expense, net		(2,661)		(1,183)

Income before income tax		2,032		6,930
Income tax expense		434		1,621
Net income		1,598		5,309

Other comprehensive (loss) income, net of tax:
Foreign currency translation adjustment		(1,021)		6,077
Unrealized (loss) gain on hedging activities		(79)		86
Other comprehensive (loss) income		(1,100)		6,163
Comprehensive income	$	498	$	11,472

Net income per share:
Basic	$	0.04	$	0.14
Diluted		0.04		0.13

Weighted average shares outstanding:
Basic		37,137		37,161
Diluted		38,109		39,802

See accompanying notes to condensed consolidated financial statements.

CLARUS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
(In thousands, except per share amounts)
Three Months Ended
March 31, 2022
March 31, 2021
Sales
Domestic sales
$
62,307
$
47,573
International sales
50,969
27,758
Total sales
113,276
75,331
Cost of goods sold
69,024
48,281
Gross profit
44,252
27,050
Operating expenses
Selling, general and administrative
34,175
20,885
Transaction costs
1,201
476
Contingent consideration expense
763
-
Total operating expenses
36,139
21,361
Operating income
8,113
5,689
Other expense
Interest expense, net
(1,116)
(238)
Other, net
(67)
(140)
Total other expense, net
(1,183)
(378)
Income before income tax
6,930
5,311
Income tax expense (benefit)
1,621
(366)
Net income
5,309
5,677
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustment
6,077
(1,016)
Unrealized gain on hedging activities
86
896
Other comprehensive income (loss)
6,163
(120)
Comprehensive income
$
11,472
$
5,557
Net income per share:
Basic
$
0.14
$
0.18
Diluted
0.13
0.17
Weighted average shares outstanding:
Basic
37,161
31,283
Diluted
39,802
32,750
See accompanying notes to condensed consolidated financial statements.

‎


CLARUS CORPORATION	CLARUS CORPORATION					CLARUS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS	CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS					CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)	(Unaudited)					(Unaudited)
(In thousands)	(In thousands)					(In thousands)

		Three Months Ended
		March 31, 2022		March 31, 2021			Three Months Ended
	Cash Flows From Operating Activities:						March 31, 2023		March 31, 2022
	Net income	$	5,309	$	5,677	Cash Flows From Operating Activities:
	Adjustments to reconcile net income to net cash used in operating activities:					Net income	$	1,598	$	5,309
	Depreciation of property and equipment		1,832		1,356	Adjustments to reconcile net income to net cash provided by (used in) operating activities:
	Amortization of other intangible assets		4,120		1,197	Depreciation of property and equipment		1,791		1,832
	Amortization of debt issuance costs		170		82	Amortization of other intangible assets		3,276		4,120
	Loss on disposition of property and equipment		9		-	Amortization of debt issuance costs		232		170
	Noncash lease expense		694		331	Loss on disposition of property and equipment		5		9
	Contingent consideration expense		754		-	Noncash lease expense		690		694
	Stock-based compensation		3,367		1,524	Contingent consideration (benefit) expense		(1,565)		754
	Deferred income taxes		524		(697)	Stock-based compensation		1,334		3,367
	Changes in operating assets and liabilities:					Deferred income taxes		(105)		524
	Accounts receivable		437		66	Changes in operating assets and liabilities:
	Inventories		(23,137)		(2,388)	Accounts receivable		(2,797)		437
	Prepaid and other assets		(856)		(5,730)	Inventories		1,341		(23,137)
	Accounts payable		(2,101)		(3,224)	Prepaid and other assets		(153)		(856)
	Accrued liabilities		820		(1,229)	Accounts payable		90		(2,101)
	Income taxes		(2,737)		517	Accrued liabilities		(2,612)		820
	Net cash used in operating activities		(10,795)		(2,518)	Income taxes		74		(2,737)
						Net cash provided by (used in) operating activities		3,199		(10,795)
	Cash Flows From Investing Activities:
	Purchases of property and equipment		(1,900)		(1,347)	Cash Flows From Investing Activities:
	Net cash used in investing activities		(1,900)		(1,347)	Proceeds from disposition of property and equipment		88		-
						Purchases of property and equipment		(1,471)		(1,900)
	Cash Flows From Financing Activities:					Net cash used in investing activities		(1,383)		(1,900)
	Proceeds from revolving credit facilities		25,670		11,637
	Repayments on revolving credit facilities		(13,689)		(16,565)	Cash Flows From Financing Activities:
	Repayments on term loans		(1,613)		(1,000)	Proceeds from revolving credit facilities		11,731		25,670
	Purchase of treasury stock		(1,097)		(651)	Repayments on revolving credit facilities		(12,153)		(13,689)
	Proceeds from exercise of stock options		126		166	Repayments on term loans		(1,668)		(1,613)
	Cash dividends paid		(930)		(783)	Purchase of treasury stock		(118)		(1,097)
	Net cash provided by (used in) financing activities		8,467		(7,196)	Proceeds from exercise of options		-		126
						Cash dividends paid		(930)		(930)
	Effect of foreign exchange rates on cash		1,214		(203)	Net cash (used in) provided by financing activities		(3,138)		8,467

	Change in cash		(3,014)		(11,264)	Effect of foreign exchange rates on cash		(429)		1,214
	Cash, beginning of year		19,465		17,789
	Cash, end of period	$	16,451	$	6,525	Change in cash		(1,751)		(3,014)
						Cash, beginning of year		12,061		19,465
	Supplemental Disclosure of Cash Flow Information:					Cash, end of period	$	10,310	$	16,451
	Cash paid for income taxes	$	3,844	$	75
	Cash paid for interest	$	926	$	161	Supplemental Disclosure of Cash Flow Information:
	Supplemental Disclosures of Non-Cash Investing and Financing Activities:					Cash paid for income taxes	$	350	$	3,844
	Property and equipment purchased with accounts payable	$	425	$	293	Cash paid for interest	$	2,586	$	926
	Lease liabilities arising from obtaining right of use assets	$	1,164	$	3,539	Supplemental Disclosures of Non-Cash Investing and Financing Activities:
						Property and equipment purchased with accounts payable	$	202	$	425
						Lease liabilities arising from obtaining right of use assets	$	3,941	$	1,164

See accompanying notes to condensed consolidated financial statements.	See accompanying notes to condensed consolidated financial statements.					See accompanying notes to condensed consolidated financial statements.

‎

CLARUS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Unaudited)
(In thousands, except per share amounts)
Accumulated
Additional
Other
Total
Common Stock
Paid-In
Accumulated
Treasury Stock
Comprehensive
Stockholders'
Shares
Amount
Capital
Deficit
Shares
Amount
Income (Loss)
Equity
Balance, December 31, 2020
35,198
$
4
$
513,979
$
(286,100)
(3,970)
$
(23,789)
$
500
$
204,594
Net income
-
-
-
5,677
-
-
-
5,677
Other comprehensive loss
-
-
-
-
-
-
(120)
(120)
Cash dividends ($0.025 per share)
-
-
-
(783)
-
-
-
(783)
Purchase of treasury stock
-
-
-
-
(41)
(651)
-
(651)
Stock-based compensation expense
-
-
1,524
-
-
-
-
1,524
Proceeds from exercise of options
127
-
246
-
-
-
-
246
Balance, March 31, 2021
35,325
$
4
$
515,749
$
(281,206)
(4,011)
$
(24,440)
$
380
$
210,487

CLARUS CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

(Unaudited)

(In thousands, except per share amounts)


													Accumulated																Accumulated
					Additional								Other		Total						Additional								Other		Total
	Common Stock				Paid-In		Accumulated		Treasury Stock				Comprehensive		Stockholders'		Common Stock				Paid-In		Accumulated		Treasury Stock				Comprehensive		Stockholders'
	Shares		Amount		Capital		Deficit		Shares		Amount		Income (Loss)		Equity		Shares		Amount		Capital		Deficit		Shares		Amount		Income (Loss)		Equity

Balance, December 31, 2021		41,105	$	4	$	662,996	$	(263,342)		(4,011)	$	(24,440)	$	(5,050)	$	370,168		41,105	$	4	$	662,996	$	(263,342)		(4,011)	$	(24,440)	$	(5,050)	$	370,168
Net income		-		-		-		5,309		-		-		-		5,309		-		-		-		5,309		-		-		-		5,309
Other comprehensive income		-		-		-		-		-		-		6,163		6,163		-		-		-		-		-		-		6,163		6,163
Cash dividends ($0.025 per share)		-		-		-		(930)		-		-		-		(930)		-		-		-		(930)		-		-		-		(930)
Purchase of treasury stock		-		-		-		-		(51)		(1,097)		-		(1,097)		-		-		-		-		(51)		(1,097)		-		(1,097)
Stock-based compensation expense		-		-		3,367		-		-		-		-		3,367		-		-		3,367		-		-		-		-		3,367
Proceeds from exercise of options		167		-		126		-		-		-		-		126		167		-		126		-		-		-		-		126
Balance, March 31, 2022		41,272	$	4	$	666,489	$	(258,963)		(4,062)	$	(25,537)	$	1,113	$	383,106		41,272	$	4	$	666,489	$	(258,963)		(4,062)	$	(25,537)	$	1,113	$	383,106

																													Accumulated
																					Additional								Other		Total
																	Common Stock				Paid-In		Accumulated		Treasury Stock				Comprehensive		Stockholders'
																	Shares		Amount		Capital		Deficit		Shares		Amount		Loss		Equity

Balance, December 31, 2022																		41,637	$	4	$	679,339	$	(336,843)		(4,589)	$	(32,707)	$	(17,685)	$	292,108
Net income																		-		-		-		1,598		-		-		-		1,598
Other comprehensive loss																		-		-		-		-		-		-		(1,100)		(1,100)
Cash dividends ($0.025 per share)																		-		-		-		(930)		-		-		-		(930)
Purchase of treasury stock																		-		-		-		-		(12)		(118)		-		(118)
Stock-based compensation expense																		-		-		1,334		-		-		-		-		1,334
Proceeds from exercise of options																		154		-		-		-		-		-		-		-
Balance, March 31, 2023																		41,791	$	4	$	680,673	$	(336,175)		(4,601)	$	(32,825)	$	(18,785)	$	292,892

See accompanying notes to condensed consolidated financial statements.	See accompanying notes to condensed consolidated financial statements.																See accompanying notes to condensed consolidated financial statements.

CLARUS CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(in thousands, except per share amounts)

NOTE 1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The accompanying unaudited condensed consolidated financial statements of Clarus Corporation and subsidiaries (which may be referred to as the “Company,” “Clarus,” “we,” “us” or “our”) as of March 31, ~~2022~~2023 and December 31, ~~2021,~~2022 and for the three months ended March 31, ~~2022~~2023 and ~~2021,~~2022, have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”), instructions to the Quarterly Report on Form 10-Q, and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and notes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting only of normal recurring adjustments, except otherwise disclosed) necessary for a fair presentation of the unaudited condensed consolidated financial statements have been included. The results for the three months ended March 31, ~~2022,~~2023 are not necessarily indicative of the results to be obtained for the year ending December 31, ~~2022.~~2023. These interim financial statements should be read in conjunction with the Company’s audited consolidated financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, ~~2021,~~2022, filed with the Securities and Exchange Commission (the “SEC”) on ~~March 7, 2022.~~

Clarus, incorporated in Delaware in 1991, acquired Black Diamond Equipment, Ltd. (“Black Diamond Equipment”) in May 2010, and changed its name to Black Diamond, Inc. in January 2011. In October 2012, we acquired PIEPS Holding GmbH and its subsidiaries (collectively, “PIEPS”). On August 14, 2017, the Company changed its name from Black Diamond, Inc. to Clarus Corporation and its stock ticker symbol from “BDE” to “CLAR” on the NASDAQ stock exchange.

On August 21, 2017, the Company acquired Sierra Bullets, L.L.C. (“Sierra”). On November 6, 2018, the Company acquired the assets of SKINourishment, Inc. (“SKINourishment”). On October 2, 2020, the Company completed the acquisition of certain assets and liabilities constituting the Barnes business (“Barnes”). On July 1, 2021, the Company completed the acquisition of Australia-based Rhino-Rack Holdings Pty Ltd (“Rhino-Rack”). On December 1, 2021, the Company completed the acquisition of Australia-based MaxTrax Australia Pty Ltd (“MAXTRAX”).February 27, 2023.

Nature of Business

Headquartered in Salt Lake City, Utah, we are a global leading designer, developer, manufacturer and distributor of best-in-class outdoor equipment and lifestyle products focused on the outdoor and consumer enthusiast markets. Our mission is to identify, acquire and grow outdoor “super fan” brands through our unique “innovate and accelerate” strategy. We define a “super fan” brand as a brand that creates the world’s pre-eminent, performance-defining product that the best-in-class user cannot live without. Each of our brands has a long history of continuous product innovation for core and everyday users alike. The Company’s products are principally sold globally under the Black Diamond®, Sierra®, Barnes® ~~and~~, Rhino-Rack® and MAXTRAX® brand names through outdoor specialty and online retailers, our own websites, distributors and original equipment manufacturers.

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities ~~and disclosure of contingent liabilities~~ at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. The more significant estimates relate to the fair value of net assets acquired in business combinations, excess or obsolete inventory, allowance for credit losses, contingent consideration liabilities, and valuation of deferred tax assets, long-lived assets, goodwill and indefinite-lived intangible assets, and other intangible assets. We base our estimates on historical experience, projected future cash flows, and other assumptions that are believed to be reasonable under the circumstances. Actual results could differ from these estimates.

~~Significant Accounting Policies~~

~~Accounting Pronouncements not yet adopted~~NOTE 2. INVENTORIES

InInventories, as of March ~~2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2020-04,~~ ~~Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. This ASU provides temporary optional expedients~~31, 2023 and exceptions to existing guidance on contract modifications and hedge accounting to facilitate the market transition from existing reference rates, such as the London Inter-Bank Offered Rate (“LIBOR”) which is being phased out in 2021, to alternate reference rates, such as the Secured Overnight Financing Rate (“SOFR”). The standard is currently effective and upon adoption may be applied prospectively to contract modifications made on or before December 31, ~~2022. Management will continue to evaluate the impact of the adoption and implementation of this standard, but currently~~ ~~management does not believe that the impact of transitioning from LIBOR to SOFR will have a material effect on the interest rates of the company~~.

2022, were as follows:



	March 31, 2023		December 31, 2022
Finished goods	$	107,152	$	107,453
Work-in-process		9,822		8,719
Raw materials and supplies		28,782		30,900
	$	145,756	$	147,072

CLARUS CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

(in thousands, except per share amounts)

~~NOTE 2. ACQUISITIONS~~

~~MAXTRAX~~

On November 26, 2021, Clarus entered into a Share and Unit Purchase Agreement (the “MAXTRAX Purchase Agreement”) to acquire Australia-based MaxTrax Australia Pty Ltd (“MAXTRAX”), which subsequently closed on December 1, 2021. All United States dollar amounts contained herein are based on the exchange rates in effect for Australian dollars ($AUD) and the market value of the Company’s common stock at the time of closing of the acquisition of MAXTRAX (the “MAXTRAX Acquisition”).

The Company acquired MAXTRAX for an aggregate purchase price of $AUD 49,744 (approximately $35,475), subject to a post-closing adjustment, comprised of $AUD 37,551 (approximately $26,780) cash, 107 shares of the Company’s common stock valued at $2,594, and additional consideration described below. The MAXTRAX Purchase Agreement also provides for the payment of additional consideration in the form of shares of the Company’s common stock valued at $AUD 6,250 (approximately $4,457) split equally on June 30, 2022 and 2023. The MAXTRAX Purchase Agreement provides for the payment of additional contingent consideration up to $AUD 6,250 (approximately $4,457) in cash if certain future net sales thresholds are met during 2022 and 2023 (the “MAXTRAX Contingent Consideration”). The Company estimated the initial fair value of the MAXTRAX Contingent Consideration to be $AUD 2,307 (approximately $1,644) and has recorded this liability within accrued liabilities and other long-term liabilities. ~~The acquisition was accounted for as a business combination.~~

~~Rhino-Rack~~

On May 30, 2021, Clarus entered into a Share Sale and Purchase Agreement (the “Purchase Agreement”) to acquire Australia-based Rhino-Rack Holdings Pty Ltd (“Rhino-Rack”), which subsequently closed on July 1, 2021. All United States dollar amounts contained herein are based on the exchange rates in effect for Australian dollars ($AUD) and the market value of the Company’s common stock at the time of closing of the acquisition of Rhino-Rack (the “Rhino-Rack Acquisition”).

The Company acquired Rhino-Rack for an aggregate purchase price of approximately $AUD 269,696 (approximately $202,488), subject to a post-closing adjustment, comprised of approximately $AUD 191,249 (approximately $143,590) cash, 2,315 shares of the Company’s common stock valued at $55,333, and additional contingent consideration described below. The Purchase Agreement also provides for the payment of additional contingent consideration up to approximately $AUD 10,000 (approximately $7,508) if certain future net sales thresholds are met (the “Rhino-Rack Contingent Consideration”). The Company estimated the initial fair value of the Rhino-Rack Contingent Consideration to be approximately $AUD 4,747 (approximately $3,565) and has recorded this liability within accrued liabilities. ~~The acquisition was accounted for as a business combination.~~

The Company believes the acquisitions of MAXTRAX and Rhino-Rack are expected to provide the Company with a greater combined global revenue base, increased gross margins, profitability and free cash flows, and access to increased liquidity to further seek to acquire and grow businesses.

The following table is a reconciliation to the fair value of the purchase consideration and how the purchase consideration is allocated to assets acquired and liabilities assumed which have been estimated at their fair values. The fair value estimates for the purchase price allocation for MAXTRAX and Rhino-Rack are based on the Company’s best estimates and assumptions as of the reporting date and are considered preliminary. Since our initial purchase price allocation for the MAXTRAX acquisition, we have increased the fair value of accrued liabilities assumed and goodwill by $741. These adjustments were made after receiving certain information, which existed as of the date of acquisition, related to the fair value of assumed liabilities and such amounts were recorded during the first quarter of 2022. The fair value measurements of identifiable assets and liabilities, and the resulting goodwill related to the MAXTRAX and Rhino-Rack Acquisitions are subject to change and the final purchase price allocations could be different from the amounts presented below. We expect to finalize the valuations as soon as practicable, but not later than one year from the date of the acquisitions. The excess of purchase consideration over the assets acquired and liabilities assumed is recorded as goodwill. Goodwill for MAXTRAX and Rhino-Rack is included in the Adventure segment. The goodwill consists largely of the growth and profitability expected from these acquisitions.

~~CLARUS CORPORATION~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED~~

~~(Unaudited)~~

~~(in thousands, except per share amounts)~~

MAXTRAX
Rhino-Rack
December 1, 2021
July 1, 2021
Number of Shares
Estimated Fair Value
Number of Shares
Estimated Fair Value
Cash paid
-
$
26,780
-
$
143,590
Issuance of shares of Clarus Corporation
107
2,594
2,315
55,333
Future issuance of shares of Clarus Corporation
-
4,457
-
-
Contingent consideration
-
1,644
-
3,565
Total purchase consideration
107
$
35,475
2,315
$
202,488
Assets acquired and liabilities assumed
Assets
Cash
$
1,869
$
7,513
Accounts receivable
2,791
10,769
Inventories
1,819
27,046
Prepaid and other current assets
883
644
Property and equipment
139
4,619
Other intangible assets
10,341
55,400
Indefinite-lived intangible assets
10,555
72,800
Goodwill
15,199
78,347
Other long-term assets
979
11,468
Total assets
44,575
268,606
Liabilities
Accounts payable and accrued liabilities
2,176
16,511
Income tax payable
251
3,413
Current portion of long-term debt
-
607
Long-term debt
-
2,107
Deferred income taxes
5,863
32,451
Other long-term liabilities
810
11,029
Total liabilities
9,100
66,118
Net Book Value Acquired
$
35,475
$
202,488

~~The estimated fair value of inventory was recorded at expected sales price less cost to sell plus a reasonable profit margin for selling efforts.~~

~~CLARUS CORPORATION~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED~~

~~(Unaudited)~~

~~(in thousands, except per share amounts)~~

~~In connection with the acquisitions, the Company acquired exclusive rights to MAXTRAX’s and Rhino-Rack’s trademarks, customer relationships, and product technologies.~~ ~~The amounts assigned to each class of intangible asset, other than goodwill acquired, and the related average useful lives as of the acquisition dates, are as follows:~~

MAXTRAX
Rhino-Rack
Average
Average
Gross
Useful Life
Gross
Useful Life
Intangibles subject to amortization
Customer relationships
$
8,986
13.5 years
$
40,400
13.5 years
Product technologies
1,355
7.0 years
15,000
10.0 years
Intangibles not subject to amortization
Trademarks
10,555
N/A
72,800
N/A
$
20,896
12.6 years
$
128,200
12.6 years

The full amount of goodwill of $15,199 for MAXTRAX and $78,347 for Rhino-Rack is expected to be non-deductible for tax purposes. No pre-existing relationships existed between the Company and MAXTRAX and Rhino-Rack or their sellers prior to the acquisition. MAXTRAX and Rhino-Rack revenue and operating income are included in the Adventure segment.

The following unaudited pro forma results are based on the individual historical results of the Company, MAXTRAX and Rhino-Rack, with adjustments to give effect as if the acquisitions and borrowings used to finance the acquisitions had occurred on January 1, 2020, after giving effect to certain adjustments, including the amortization of intangible assets, depreciation of fixed assets, interest expense and taxes and assumes the purchase price was allocated to the assets purchased and liabilities assumed based on their fair market values at the date of purchase.


	~~Three Months Ended~~
	~~March 31, 2021~~
~~Sales~~	$	~~107,009~~
~~Net income~~	$	~~9,985~~
~~Net income per share - basic~~	$	~~0.32~~
~~Net income per share - diluted~~	$	~~0.30~~

The unaudited pro forma information is presented for illustrative purposes only and is not necessarily indicative of the operating results that would have occurred had the transactions been consummated as of January 1, 2020. Furthermore, such pro forma information is not necessarily indicative of future operating results of the combined companies and should not be construed as representative of the operating results of the combined companies for any future dates or periods.

~~NOTE 3. INVENTORIES~~

~~Inventories, as of March 31, 2022 and December 31, 2021, were as follows:~~

March 31, 2022
December 31, 2021
Finished goods
$
106,916
$
86,647
Work-in-process
10,046
10,336
Raw materials and supplies
35,756
32,371
$
152,718
$
129,354

~~CLARUS CORPORATION~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED~~

~~(Unaudited)~~

~~(in thousands, except per share amounts)~~

NOTE 4.3. PROPERTY AND EQUIPMENT

Property and equipment, net, as of March 31, ~~2022~~2023, and December 31, ~~2021,~~2022, were as follows:


	March 31, 2022		December 31, 2021		March 31, 2023		December 31, 2022

Land	$	4,160	$	4,160	$	4,160	$	4,160
Building and improvements		16,544		16,403		17,369		17,357
Furniture and fixtures		6,756		6,677		7,355		7,384
Computer hardware and software		8,374		7,512		8,615		8,498
Machinery and equipment		34,470		33,581		37,701		37,054
Construction in progress		4,435		4,312		5,165		5,028
		74,739		72,645		80,365		79,481
Less accumulated depreciation		(31,571)		(29,819)		(38,168)		(36,471)
	$	43,168	$	42,826	$	42,197	$	43,010

Depreciation expense for the three months ended March 31, 2023 and 2022 was $1,791 and ~~2021 was~~ $1,832, ~~and $1,356,~~ respectively.

NOTE 5.4. GOODWILL AND INTANGIBLE ASSETS

Goodwill

The following table summarizes the balances in goodwill by segment:

Outdoor
Precision Sport
Adventure
Total
Balance at December 31, 2021
$
-
$
26,715
$
91,375
$
118,090
Acquisition adjustment
-
-
741
741
Impact of foreign currency exchange rates
-
-
2,233
2,233
Balance at March 31, 2022
$
-
$
26,715
$
94,349
$
121,064


	Outdoor		Precision Sport		Adventure		Total

Goodwill	$	29,507	$	26,715	$	88,349	$	144,571
Accumulated goodwill impairment losses		(29,507)		-		(52,071)		(81,578)

Balance at December 31, 2022		-		26,715		36,278		62,993

Impact of foreign currency exchange rates		-		-		(289)		(289)

Balance at March 31, 2023	$	-	$	26,715	$	35,989	$	62,704

~~Indefinite Lived~~Indefinite-Lived Intangible Assets

The following table summarizes the changes in ~~indefinite lived~~indefinite-lived intangible assets:


Balance at December 31, ~~2021~~2022	$	~~128,271~~82,901

Impact of foreign currency exchange rates		~~2,844~~(457)

Balance at March 31, ~~2022~~2023	$	~~131,115~~82,444

~~Trademarks classified as indefinite-lived intangible assets by brand as of March 31, 2022 and December 31, 2021, were as follows:~~

March 31, 2022
December 31, 2021
Black Diamond
$
19,600
$
19,600
PIEPS
3,102
3,166
Sierra
18,900
18,900
Barnes
5,600
5,600
Rhino-Rack
72,801
70,278
MAXTRAX
11,112
10,727
$
131,115
$
128,271

118

CLARUS CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

(in thousands, except per share amounts)

Trademarks classified as indefinite-lived intangible assets by brand as of March 31, 2023 and December 31, 2022, were as follows:


	March 31, 2023		December 31, 2022
Black Diamond	$	19,600	$	19,600
PIEPS		3,036		2,986
Sierra		18,900		18,900
Barnes		5,600		5,600
Rhino-Rack		25,379		25,744
MAXTRAX		9,929		10,071
	$	82,444	$	82,901

Other Intangible Assets, net

The following table summarizes the changes in gross other intangible assets:


Gross balance at December 31, ~~2021~~2022	$	~~104,681~~100,889

Impact of foreign currency exchange rates		~~1,983~~(697)

Gross balance at March 31, ~~2022~~2023	$	~~106,664~~100,192

Other intangible assets, net of amortization as of March 31, ~~2022~~2023 and December 31, ~~2021,~~2022, were as follows:


	March 31, 2022								March 31, 2023
	Gross		Accumulated Amortization		Net		Weighted Average Useful Life		Gross		Accumulated Amortization		Net		Weighted Average Useful Life
Intangibles subject to amortization
Customer relationships	$	81,533	$	(27,032)	$	54,501		13.8 years	$	76,852	$	(36,924)	$	39,928		13.8 years
Product technologies		22,921		(6,634)		16,287		10.2 years		21,130		(9,974)		11,156		10.2 years
Tradename / trademark		1,263		(724)		539		9.4 years		1,263		(865)		398		9.4 years
Core technologies		947		(947)		-		10.0 years		947		(947)		-		10.0 years
	$	106,664	$	(35,337)	$	71,327		12.9 years	$	100,192	$	(48,710)	$	51,482		13.0 years

	December 31, 2021								December 31, 2022
	Gross		Accumulated Amortization		Net		Weighted Average Useful Life		Gross		Accumulated Amortization		Net		Weighted Average Useful Life

Customer relationships	$	80,078	$	(23,804)	$	56,274		13.8 years	$	77,370	$	(34,653)	$	42,717		13.8 years
Product technologies		22,393		(5,557)		16,836		10.2 years		21,309		(9,207)		12,102		10.2 years
Tradename / trademark		1,263		(690)		573		9.4 years		1,263		(827)		436		9.4 years
Core technologies		947		(947)		-		10.0 years		947		(947)		-		10.0 years
	$	104,681	$	(30,998)	$	73,683		12.9 years	$	100,889	$	(45,634)	$	55,255		13.0 years

Amortization expense for the three months ended March 31, 2022 and 2021, was $4,120 and $1,197, respectively. Future amortization expense for other intangible assets as of March 31, 2021 is as follows:

Years Ending December 31,
Amortization Expense
2022 (excluding the three months ended March 31, 2022)
$
11,946
2023
13,714
2024
11,543
2025
9,334
2026
7,188
Thereafter
17,602
$
71,327

129

CLARUS CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

(in thousands, except per share amounts)

Amortization expense for the three months ended March 31, 2023 and 2022, was $3,276 and $4,120, respectively. Future amortization expense for other intangible assets as of March 31, 2023 is as follows:


Years Ending December 31,	Amortization Expense
2023 (excluding the three months ended March 31, 2023)	$	9,427
2024		10,654
2025		8,622
2026		6,619
2027		4,837
2028		3,451
Thereafter		7,872
	$	51,482

NOTE 6.5. ACCRUED LIABILITIES AND OTHER LONG-TERM LIABILITIES

Accrued liabilities as of March 31, ~~2022~~2023 and December 31, ~~2021,~~2022, were as follows:


	March 31, 2022		December 31, 2021		March 31, 2023		December 31, 2022

Accrued payroll and related items	$	4,678	$	5,029	$	4,626	$	5,363
Accrued bonus		2,972		3,615		1,581		1,006
Designated forward exchange contracts		92		-		207		-
Accrued warranty		1,928		1,529		1,371		1,465
Current lease liabilities		2,998		2,824		3,231		2,836
Accrued commissions		972		811		733		343
Contingent consideration liabilities		2,980		2,791		-		1,595
Accrued excise tax		912		724		764		977
Other		12,644		10,150		9,612		11,585
	$	30,176	$	27,473	$	22,125	$	25,170

Other long-term liabilities as of March 31, ~~2022~~2023 and December 31, ~~2021,~~2022, were as follows:


	March 31, 2022		December 31, 2021		March 31, 2023		December 31, 2022

Long-term lease liability	$	15,764	$	15,111	$	15,629	$	12,825
Deferred stock consideration for business acquisition		4,693		4,530		2,096		2,127
Contingent consideration liability		1,408		694
Other		1,169		1,113		849		902
	$	23,034	$	21,448	$	18,574	$	15,854

~~NOTE 7. LONG-TERM DEBT~~

~~Long-term debt as of March 31, 2022 and December 31, 2021, was as follows:~~

March 31, 2022
December 31, 2021
Revolving credit facility (a)
$
30,481
$
18,501
Other debt (b)
1,414
1,467
Term loan (c)
120,313
121,874
Debt issuance costs
(276)
(309)
151,932
141,533
Less current portion
(12,103)
(9,585)
$
139,829
$
131,948

On January 3, 2022, the Company and certain of its direct and indirect subsidiaries (each, a “Loan Party” and, collectively, the “Loan Parties”) entered into Amendment No. 4 to the Credit Agreement (“Amendment No. 4”), as previously amended, with JPMorgan Chase Bank, N.A., as administrative agent, and the lenders from time to time party thereto (collectively, the “Credit Agreement”). Amendment No. 4, among other things, permits (i) the Company to borrow in Australian Dollars and New Zealand Dollars in order to support the operations of the Company in Australia and New Zealand and (ii) provides for addbacks to EBITDA, for debt covenant purposes, (as defined in the Credit Agreement) under the Credit Agreement for expenses relating to activities in respect of acquisitions, dispositions, investments and financings (whether or not these transactions are actually consummated).

The Credit Agreement continues to permit the Loan Parties, subject to certain requirements, to arrange with lenders for an aggregate of up to $50,000 of additional revolving and/or term loan commitments (both of which are currently uncommitted), for potential aggregate revolving and term loan commitments under the Credit Agreement of up to $275,000.

1310

CLARUS CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

(in thousands, except per share amounts)

NOTE 6. LONG-TERM DEBT

Long-term debt as of March 31, 2023 and December 31, 2022, was as follows:


	March 31, 2023		December 31, 2022

Revolving credit facility (a)	$	18,538	$	18,049
Other debt (b)		126		1,134
Term loan (c)		118,750		120,311
Debt issuance costs		(408)		(460)
		137,006		139,034
Less current portion		(12,562)		(11,952)
	$	124,444	$	127,082

On April 18, 2022 (the “Effective Date”), the Company and certain of its direct and indirect subsidiaries entered into an Amended and Restated Credit Agreement with JPMorgan Chase Bank, N.A., as administrative agent and the lenders party thereto (the “Restated Credit Agreement”).

The Restated Credit Agreement provides for borrowings of up to $300,000 under a secured revolving credit facility (the “Revolving Loans”) (including up to $5,000 for letters of credit), and borrowings of up to $125,000 under a secured term loan facility (the “Term Loans”). The Restated Credit Agreement also permits the Company, subject to certain requirements, to arrange with lenders for an aggregate of up to $175,000 of additional revolving and/or term loan commitments (both of which are currently uncommitted), for potential aggregate revolving and term loan commitments under the Restated Credit Agreement of up to $600,000. The Restated Credit Agreement matures on April 18, 2027 (the “Maturity Date”), at which time the revolving commitments thereunder will terminate and all outstanding Revolving Loans and Term Loans, together with all accrued and unpaid interest thereon, must be repaid.

All obligations under the Restated Credit Agreement are secured by our subsidiary equity interests, as well as accounts receivable, inventory, intellectual property and certain other assets owned by the Company. The Restated Credit Agreement contains restrictions on the Company’s ability to pay dividends or make distributions or other restricted payments if certain conditions in the Restated Credit Agreement are not fulfilled. The Restated Credit Agreement also includes other customary affirmative and negative covenants, including financial covenants relating to the Company’s consolidated total leverage ratio and fixed charge coverage ratio. The Company was in compliance with the debt covenants set forth in the Credit Agreement as of March 31, ~~2022.~~2023.

(a)As of March 31, ~~2022,~~2023, the Company had drawn ~~$30,481~~$18,538 on the ~~$100,000~~ revolving ~~commitment that was available under the credit agreement, as amended, with JPMorgan Chase Bank, N.A.,~~loan, with a maturity date of ~~May 3, 2024.~~April 18, 2027. Approximately $61,000 in additional funds were available to borrow on the revolving loan at March 31, 2023, while maintaining compliance with the consolidated total leverage ratio per the Restated Credit Agreement of 3.75 to 1. The Company pays interest monthly on any borrowings on the Restated Credit Agreement. As of March 31, ~~2022~~2023 and December 31, ~~2021,~~2022, the ~~rate was 2.3750%.~~rates were approximately 6.8% and 6.3%, respectively.

(b)Foreign subsidiaries of the Company have a revolving credit facility and term debt with financial institutions which mature between ~~August 22, 2022~~April 26, 2023 and August 8, 2024. The foreign subsidiaries pay interest monthly on any borrowings on the credit facilities as well as monthly payments on the term debt. As of March 31, 2023, the interest rates ranged between approximately 3.2% and 4.0% and as of December 31, 2022, the interest rates ranged between ~~1.3387%~~approximately 1.3% and ~~4.9500% and as of December 31, 2021 the interest rates ranged between 1.3387% and 5.1651%~~4.0%. The credit facilities are secured by certain assets of the foreign subsidiaries. The revolving credit facility was settled and closed as of March 31, 2023 and had no amounts outstanding.

(c)The Company is required to repay the term loan through quarterly payments of $1,563 each beginning with ~~September~~June 30, ~~2021,~~2022, increasing to $3,125 each beginning with ~~September~~June 30, ~~2022,~~2023, and any remaining obligations will be repaid in full on the maturity date of the Restated Credit Agreement of ~~May 3, 2024.~~April 18, 2027. The Company pays interest monthly on any borrowings on the Restated Credit Agreement. As of March 31, ~~2022~~2023 and December 31, ~~2021,~~2022, the ~~rate was 2.3750%~~rates were approximately 6.8% and ~~2.3750%~~6.3%, respectively.

CLARUS CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

(in thousands, except per share amounts)

NOTE 8.7. DERIVATIVE FINANCIAL INSTRUMENTS

The Company’s primary exchange rate risk management objective is to mitigate the uncertainty of anticipated cash flows attributable to changes in foreign currency exchange rates. The Company primarily focuses on mitigating changes in cash flows resulting from sales denominated in currencies other than the U.S. dollar. The Company manages this risk primarily by using currency forward and option contracts. If the anticipated transactions are deemed probable, the resulting relationships are formally designated as cash flow hedges. The Company accounts for these contracts as cash flow hedges and tests effectiveness by determining whether changes in the expected cash flow of the derivative offset, within a range, changes in the expected cash flow of the hedged item.

At March 31, ~~2022,~~2023, the Company’s derivative contracts had remaining maturities of less than one year. The counterparties to these transactions had both long-term and short-term investment grade credit ratings. The maximum net exposure of the Company’s credit risk to the counterparties is generally limited to the aggregate unrealized loss of $207 on all contracts ~~with that counterparty. At~~as March 31, ~~2022, there was no such exposure to the counterparties.~~2023. The Company’s exposure of counterparty credit risk is limited to the aggregate unrealized gain of ~~$534 on~~ all contracts atwith that counterparty. At March 31, ~~2022.~~2023, there was no such exposure to the counterparties. The Company’s derivative counterparties have strong credit ratings and as a result, the Company does not require collateral to facilitate transactions.

The Company held the following contracts designated as hedging instruments as of March 31, ~~2022~~2023 and December 31, ~~2021:~~2022:


	March 31, 2023
	Notional	Latest
	Amount	Maturity

Foreign exchange contracts - Euros	€ 20,871	February 2024


	December 31, 2022
	Notional	Latest
	Amount	Maturity

Foreign exchange contracts - Canadian Dollars	$~~16,440~~2,807	February 2023
Foreign exchange contracts - Euros	€ ~~18,713~~20,760	February ~~2023~~
~~Foreign exchange contracts - Australian Dollars~~	~~$1,863~~	~~June 2022~~2024


	~~December 31, 2021~~
	~~Notional~~	~~Latest~~
	~~Amount~~	~~Maturity~~

~~Foreign exchange contracts - Canadian Dollars~~	~~$14,850~~	~~February 2023~~
~~Foreign exchange contracts - Euros~~	~~€ 20,104~~	~~February 2023~~

~~CLARUS CORPORATION~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED~~

~~(Unaudited)~~

~~(in thousands, except per share amounts)~~

For contracts that qualify as effective hedge instruments, the effective portion of gains and losses resulting from changes in fair value of the instruments are included in accumulated other comprehensive ~~income (loss)~~loss and reclassified to sales in the period the underlying hedged transaction is recognized in earnings. Gains (losses) of ~~$253~~$(16) and ~~$(321)~~$253 were reclassified to sales during the three months ended March 31, ~~2022~~2023 and ~~2021,~~2022, respectively.

The following table presents the balance sheet classification and fair value of derivative instruments as of March 31, ~~2022~~2023 and December 31, ~~2021:~~2022:

Classification
March 31, 2022
December 31, 2021
Derivative instruments in asset positions:
Designated forward exchange contracts
Prepaid and other current assets
$
626
$
491
Designated forward exchange contracts
Other long-term assets
$
-
$
20
Derivative instruments in liability positions:
Designated forward exchange contracts
Accrued liabilities
$
92
$
-
Designated forward exchange contracts
Other long-term liabilities
$
-
$
24


	Classification	March 31, 2023		December 31, 2022

Derivative instruments in asset positions:
Designated forward exchange contracts	Prepaid and other current assets	$	-	$	357

Derivative instruments in liability positions:
Designated forward exchange contracts	Accrued liabilities	$	207	$	-
Designated forward exchange contracts	Other long-term liabilities	$	-	$	6

CLARUS CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

(in thousands, except per share amounts)

NOTE 9.8. ACCUMULATED OTHER COMPREHENSIVE ~~INCOME (LOSS)~~LOSS

Accumulated other comprehensive ~~income (loss)~~loss (“AOCI”) primarily consists of foreign currency translation adjustments and changes in our forward foreign exchange contracts. The following table sets forth the changes in AOCI, net of tax, for the three months ended March 31, ~~2022:~~2023:

Foreign Currency Translation Adjustments
Unrealized Gains (Losses) on Cash Flow Hedges
Total
Balance as of December 31, 2021
$
(5,241)
$
191
$
(5,050)
Other comprehensive income before reclassifications
6,077
280
6,357
Amounts reclassified from other comprehensive income
-
(194)
(194)
Net current period other comprehensive income
6,077
86
6,163
Balance as of March 31, 2022
$
836
$
277
$
1,113


	Foreign Currency Translation Adjustments		Unrealized Gains (Losses) on Cash Flow Hedges		Total

Balance as of December 31, 2022	$	(17,628)	$	(57)	$	(17,685)
Other comprehensive loss before reclassifications		(1,021)		(91)		(1,112)
Amounts reclassified from other comprehensive loss		-		12		12
Net current period other comprehensive loss		(1,021)		(79)		(1,100)
Balance as of March 31, 2023	$	(18,649)	$	(136)	$	(18,785)

The following table sets forth the changes in AOCI, net of tax, for the three months ended March 31, ~~2021:~~2022:

Foreign Currency Translation Adjustments
Unrealized Gains (Losses) on Cash Flow Hedges
Total
Balance as of December 31, 2020
$
1,480
$
(980)
$
500
Other comprehensive income (loss) before reclassifications
(1,016)
650
(366)
Amounts reclassified from other comprehensive income (loss)
-
246
246
Net current period other comprehensive income (loss)
(1,016)
896
(120)
Balance as of March 31, 2021
$
464
$
(84)
$
380


	Foreign Currency Translation Adjustments		Unrealized Gains (Losses) on Cash Flow Hedges		Total

Balance as of December 31, 2021	$	(5,241)	$	191	$	(5,050)
Other comprehensive income before reclassifications		6,077		280		6,357
Amounts reclassified from other comprehensive income		-		(194)		(194)
Net current period other comprehensive income		6,077		86		6,163
Balance as of March 31, 2022	$	836	$	277	$	1,113

The effects on net income of amounts reclassified from unrealized gains (losses) on cash flow hedges for foreign exchange contracts for the three months ended March 31, 2023 and 2022, were as follows:


	Gains (losses) reclassified from AOCI to the Consolidated Statements of Comprehensive Income
Affected line item in the Consolidated	Three Months Ended
Statements of Comprehensive Income	March 31, 2023		March 31, 2022
Foreign exchange contracts:
Sales	$	(16)	$	253
Less: Income tax (benefit) expense		(4)		59
Amount reclassified, net of tax	$	(12)	$	194

Total reclassifications from AOCI	$	(12)	$	194

1513

CLARUS CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

(in thousands, except per share amounts)

~~The effects on net income of amounts reclassified from unrealized gains on cash flow hedges for foreign exchange contracts for the three months ended March 31, 2022 and 2021, were as follows:~~

Gains (losses) reclassified from AOCI to the Condensed Consolidated Statements of Comprehensive Income
Affected line item in the Condensed Consolidated
Three Months Ended
Statements of Comprehensive Income
March 31, 2022
March 31, 2021
Foreign exchange contracts:
Sales
$
253
$
(321)
Less: Income tax expense (benefit)
59
(75)
Amount reclassified, net of tax
$
194
$
(246)
Total reclassifications from AOCI
$
194
$
(246)

NOTE ~~10.~~9. FAIR VALUE MEASUREMENTS

We measure certain financial assets and liabilities at fair value on a recurring basis. Fair value is defined as an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants, under a three-tier fair value hierarchy that prioritizes the inputs used in measuring fair value as follows:

Level 1 - inputs to the valuation methodology are quoted market prices for identical assets or liabilities in active markets.

Level 2 - inputs to the valuation methodology include quoted prices in markets that are not active or model inputs that are

observable either directly or indirectly for substantially the full term of the asset or liability.

Level 3 - inputs to the valuation methodology are based on prices or valuation techniques that are unobservable.

Items Measured at Fair Value on a Recurring Basis

Assets and liabilities measured at fair value on a recurring basis at March 31, ~~2022~~2023 and December 31, ~~2021~~2022 were as follows:


	March 31, 2022								March 31, 2023
	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total

Assets
Designated forward exchange contracts	$	-	$	626	$	-	$	626	$	-	$	-	$	-	$	-
	$	-	$	626	$	-	$	626	$	-	$	-	$	-	$	-

Liabilities
Designated forward exchange contracts	$	-	$	92	$	-	$	92	$	-	$	207	$	-	$	207
Contingent consideration liabilities		-		-		4,388		4,388
	$	-	$	92	$	4,388	$	4,480	$	-	$	207	$	-	$	207

	December 31, 2021								December 31, 2022
	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total

Assets
Designated forward exchange contracts	$	-	$	511	$	-	$	511	$	-	$	357	$	-	$	357
	$	-	$	511	$	-	$	511	$	-	$	357	$	-	$	357

Liabilities
Designated forward exchange contracts	$	-	$	24	$	-	$	24	$	-	$	6	$	-	$	6
Contingent consideration liabilities		-		-		3,485		3,485	$	-	$	-	$	1,595	$	1,595
	$	-	$	24	$	3,485	$	3,509	$	-	$	6	$	1,595	$	1,601

Derivative financial instruments are recorded at fair value based on current market pricing models. No nonrecurring fair value

~~CLARUS CORPORATION~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED~~

~~(Unaudited)~~

~~(in thousands, except per share amounts)~~

measurements existed at March 31, ~~2022~~2023 and December 31, ~~2021.~~2022.

The Company estimated the initial fair value of the contingent consideration liabilities primarily using a series of call options. Significant unobservable inputs used in the valuation ~~include~~included discount rates ranging from 4.8% to 8.0%. Contingent consideration liabilities are subsequently remeasured at the estimated fair value at the end of each reporting period using financial projections of the acquired company, such as sales-based milestones and estimated probabilities of achievement, with the change in fair value recognized in contingent consideration ~~expense~~benefit in the accompanying ~~condensed~~ consolidated statements of comprehensive income for such period. We measure the initial liability and remeasure the liability on a recurring basis using Level 3 inputs as defined under authoritative guidance for fair value measurements.

CLARUS CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

(in thousands, except per share amounts)

The following table summarizes the changes in contingent consideration liabilities:


Balance at December 31, 2021	$	3,485
			MAXTRAX

Balance at December 31, 2022			$	1,595
Fair value adjustments		763		(1,565)
Contingent consideration payments				-
Impact of foreign currency exchange rates		140		(30)
Balance at March 31, 2022	$	4,388
Balance at March 31, 2023			$	-

As the contingent consideration liabilities are remeasured to fair value each reporting period, significant increases or decreases in projected sales, discount rates or the time until payment is made ~~would~~could have resulted in a significantly lower or higher fair value measurement. Our determination of fair value of the contingent consideration liabilities could change in future periods based on our ongoing evaluation of these significant unobservable inputs. As of March 31, 2023, the net sales threshold required for the payment of the MAXTRAX contingent consideration is not expected to be met during the measurement period ended June 30, 2023.

NOTE ~~11.~~10. STOCKHOLDERS’ EQUITY

On August 6, 2018, the Company announced that its Board of Directors approved the initiation of a quarterly cash dividend program of $0.025 per share of the Company’s common stock (the “Quarterly Cash Dividend”) or $0.10 per share on an annualized basis. The declaration and payment of future Quarterly Cash Dividends is subject to the discretion of and approval of the Company’s Board of Directors. On April ~~29, 2022,~~28, 2023, the Company announced that its Board of Directors approved the payment on May ~~20, 2022~~19, 2023 of the Quarterly Cash Dividend of $0.025 to the record holders of shares of the Company’s common stock as of the close of business on May ~~9, 2022.~~8, 2023.

NOTE ~~12.~~11. EARNINGS PER SHARE

Basic earnings per share is computed by dividing earnings by the weighted average number of common shares outstanding during each period. Diluted earnings per share is computed by dividing earnings by the total of the weighted average number of shares of common stock outstanding during each period, plus the effect of dilutive outstanding stock options and unvested restricted stock grants. Potentially dilutive securities are excluded from the computation of diluted earnings per share if their effect is anti-dilutive to the loss from continuing operations.

The following table is a reconciliation of basic and diluted shares of common stock outstanding used in the calculation of earnings per share:


	Three Months Ended				Three Months Ended
	March 31, 2022		March 31, 2021		March 31, 2023		March 31, 2022

Weighted average shares outstanding - basic		37,161		31,283		37,137		37,161
Effect of dilutive stock awards		2,435		1,467		750		2,435
Effect of dilutive deferred stock consideration for business acquisition		206		-		222		206
Weighted average shares outstanding - diluted		39,802		32,750		38,109		39,802

Net income per share:
Basic	$	0.14	$	0.18	$	0.04	$	0.14
Diluted		0.13		0.17		0.04		0.13

For the three months ended March 31, ~~2022~~2023 and ~~2021,~~2022, equity awards of ~~1,329~~3,713 and ~~500,~~1,329, respectively, were excluded from the calculation of earnings per share for these periods as they were anti-dilutive.

1715

CLARUS CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

(in thousands, except per share amounts)

NOTE ~~13.~~12. STOCK-BASED COMPENSATION PLAN

Under the Company’s current 2015 Stock Incentive Plan (the “2015 Plan”), the Company’s Board of Directors has flexibility to determine the type and amount of awards to be granted to eligible participants, who must be employees, directors, officers or consultants of the Company or its subsidiaries. The 2015 Plan allows for grants of incentive stock options, nonqualified stock options, restricted stock awards, stock appreciation rights, and restricted units. The aggregate number of shares of common stock that may be granted through awards under the 2015 Plan to any employee in any calendar year may not exceed 500 shares. The 2015 Plan will continue in effect until December 2025 unless terminated sooner.

~~Options Granted:~~

During the three months ended March 31, ~~2022,~~2023, the Company ~~issued~~did not issue any stock options ~~for an aggregate of 353 shares~~ under the 2015 Plan to ~~directors and~~ employees of the Company. ~~Of the 353 options, 343 vest and become exercisable over a period of three years, and the remaining 10 vest immediately. All of the issued stock options expire ten years from the date of the grant.~~

For computing the fair value of the stock-based awards, the fair value of each option grant has been estimated as of the date of grant using the Black-Scholes option-pricing model with the following assumptions:

~~Options Granted During the Three Months Ended March 31, 2022~~

Number of options
343
10
Option vesting period
3 Years
Immediate
Grant price (per share)
$21.83 - $27.65
$21.83
Dividend yield
0.36% - 0.46%
0.46%
Expected volatility (a)
38.6% - 38.7%
39.40%
Risk-free interest rate
1.46% - 1.68%
1.66%
Expected life (years) (b)
6.00
5.50
Weighted average fair value (per share)
$8.24 - $10.41
$8.03

~~(a)Expected volatility is based upon the Company’s historical volatility.~~

~~(b)The expected term was determined based upon the underlying terms of the awards and the category and employment history of employee award recipient.~~

~~The grant date fair value of the stock options granted during the three months ended March 31, 2022, was $2,967, which will be recognized over the vesting period of the options.~~

Market Condition Restricted Shares Granted:

On March ~~4, 2022,~~14, 2023, the Company ~~issued and granted to certain employees restricted stock awards of 700~~awarded the Executive Chairman 500 restricted shares under the 2015 Plan, of which ~~700 restricted~~250 and 250 shares will vest if, on or before March ~~4, 2032,~~14, 2033, the Fair Market Value (as defined in the Plan) of the Company’s common stock shall have equaled or exceeded ~~$50.00~~$15.00 and $18.00 per share for twenty consecutive trading ~~days. For computing~~days, respectively. As the ~~fair value~~vesting terms of the restricted shares ~~with~~include a market condition, the fair value of the restricted stock ~~award grant has been~~was estimated as of the date of grant using the Monte-Carlo pricing model with the following assumptions:


		March ~~4, 2022~~14, 2023

Number issued		~~700~~500
~~Market condition vesting requirement~~Vesting period		$~~50.00~~15.00 - $18.00 stock price target
Grant price (per share)		$~~21.83~~9.60
Dividend yield		~~0.46%~~1.04%
Expected volatility		~~41.0%~~45.2%
Risk-free interest rate		~~1.74%~~3.64%
Expected term (years)		2.56 - 3.22
Weighted average fair value (per share)		$~~15.37~~7.84 - $8.34

~~CLARUS CORPORATION~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED~~

~~(Unaudited)~~

~~(in thousands, except per share amounts)~~

Using these assumptions, the grant date fair value of the ~~market condition~~ restricted stock awards ~~granted on March 4, 2022,~~ was approximately ~~$10,761~~$4,046 and the expected term was ~~4.15~~between 2.56 and 3.22 years.

The total non-cash stock compensation expense related to restricted stock, stock options and stock awards recorded by the Company for the three months ended March 31, 2023 and 2022 was $1,334 and ~~2021 was~~ $3,367, ~~and $1,524,~~ respectively. For the three months ended March 31, ~~2022~~2023 and ~~2021,~~2022, the majority of stock-based compensation costs were classified as selling, general and administrative expenses.

As of March 31, ~~2022,~~2023, there were ~~1,701~~587 unvested stock options and unrecognized compensation cost of ~~$7,904~~$2,797 related to unvested stock options, as well as ~~1,546~~1,717 unvested restricted stock awards and unrecognized compensation costs of ~~$13,083~~$10,836 related to unvested restricted stock awards.

NOTE ~~14.~~13. COMMITMENTS AND CONTINGENCIES

As a consumer goods manufacturer and distributor, the Company faces the risk of product liability and related lawsuits involving claims for substantial money damages, product recall actions and higher than anticipated rates of warranty returns or other returns of goods. The Company is therefore vulnerable to various personal injury and property damage lawsuits relating to its products and incidental to its business.

The Company is involved in various legal disputes and other legal proceedings that arise from time to time in the ordinary course of business. Anticipated costs related to litigation matters are accrued when it is both probable that a liability has been incurred and the amount can be reasonably estimated. Based on currently available information, the Company does not believe that it is reasonably possible that the disposition of any of the legal disputes the Company or its subsidiaries is currently involved in will have a material adverse effect upon the Company’s consolidated financial condition, results of operations or cash flows. There is a reasonable possibility of loss from contingencies in excess of the amounts accrued by the Company in the accompanying condensed consolidated balance sheets; however, the actual amounts of such possible losses cannot currently be reasonably estimated by the Company at this time. It is possible that, as additional information becomes available, the impact on the Company could have a different effect.

CLARUS CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

(in thousands, except per share amounts)

NOTE ~~15.~~14. INCOME TAXES

The Company’s U.S. federal statutory tax rate of 21% and its foreign operations have statutory tax rates of approximately ~~25%~~24% in Austria, 28% in New Zealand, and 30% in Australia.

The difference between the Company’s estimated effective tax ~~rate~~rates of ~~23.4%~~21.4% for the three months ended March 31, ~~2022,~~2023, and the U.S. federal statutory tax rate of 21% ~~were~~was primarily due to the impact of ~~foreign earnings taxed at applicable statutory rates~~stock compensation, research and ~~permanent book to tax differences related to incentive~~experimentation expenditures and credits, and discrete stock ~~options and officer compensation limitations.~~option windfall benefits in the first quarter of 2023.

As of December 31, ~~2021,~~2022, the Company’s gross deferred tax asset was ~~$38,184.~~$32,972. The Company has recorded a valuation allowance of ~~$4,378,~~$3,323, resulting in a net deferred tax asset of ~~$33,806,~~$29,649, before deferred tax liabilities of ~~$46,653.~~$30,243. The Company has provided a valuation allowance against a portion of the deferred tax assets as of March 31, ~~2022~~2023 and December 31, ~~2021,~~2022, because the ultimate realization of those assets did not meet the more-likely-than-not criteria. The majority of the Company’s deferred tax assets consist of ~~NOLs~~net operating loss carryforwards (“NOLs”) for federal tax purposes. If a change in control were to occur, these could be limited under Section 382 of the Internal Revenue Code of 1986 (“Code”), as amended.

In assessing the realizability of deferred income tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible and net operating loss and credit carryforwards expire. The estimates and judgments associated with the Company’s valuation allowance on deferred tax assets are considered critical due to the amount of deferred tax assets recorded by the Company on its consolidated balance sheet and the judgment required in determining the Company’s future taxable income. The need for a valuation allowance is reassessed at each interim reporting period.

As of December 31, ~~2021,~~2022, the Company had NOLs and research and experimentation credit for U.S. federal income tax purposes of ~~$60,712~~$17,663 and ~~$2,289,~~$2,651, respectively. The Company believes its U.S. Federal NOLs will substantially offset its future U.S. Federal income taxes until expiration.

NOLs available to offset taxable income, subject to compliance with Section 382 of the Code, begin to expire based upon the following schedule:


Net Operating Loss Carryforward Expiration Dates
December 31, 2022

Expiration Dates December 31,	Net Operating Loss Amount
2023	$	1,851
2024		3,566
2025		1,708
2026 and beyond		10,538
Total	$	17,663

1917

CLARUS CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

(in thousands, except per share amounts)

~~NOLs available to offset taxable income, subject to compliance with Section 382 of the Code, begin to expire based upon the following schedule:~~

Net Operating Loss Carryforward Expiration Dates
December 31, 2021
Expiration Dates December 31,
Net Operating Loss Amount
2022
$
39,507
2023
5,712
2024
3,566
2025 and beyond
11,927
Total
$
60,712

NOTE ~~16.~~15. SEGMENT INFORMATION

We operate our business structure within 3three segments. These segments are defined based on the internal financial reporting used by our chief operating decision maker to allocate resources and assess performance. Certain significant selling and general and administrative expenses are not allocated to the segments including non-cash stock compensation expense. Each segment is described below:

Our Outdoor segment, which includes Black Diamond Equipment, PIEPS, and SKINourishment, is a global leader in designing, manufacturing, and marketing innovative outdoor engineered equipment and apparel for climbing, mountaineering, trail running, backpacking, skiing, and a wide range of other year-round outdoor recreation activities. Our Outdoor segment offers a broad range of products including: high-performance, activity-based apparel (such as shells, insulation, midlayers, pants and logowear); rock-climbing footwear and equipment (such as carabiners, protection devices, harnesses, belay devices, helmets, and ice-climbing gear); technical backpacks and high-end day packs; trekking poles; headlamps and lanterns; gloves and mittens; and skincare and other sport-enhancing products. We also offer advanced skis, ski poles, ski skins, and snow safety products, including avalanche airbag systems, avalanche transceivers, shovels, and probes.

Our Precision Sport segment, which includes Sierra and Barnes, includes two iconic American manufacturers of a wide range of high-performance bullets and ammunition for both rifles and pistols. These bullets are used for precision target shooting, hunting and military and law enforcement purposes.

Our Adventure segment, which includes Rhino-Rack and MAXTRAX, is a manufacturer of highly-engineered automotive roof racks, trays, mounting systems, luggage boxes, carriers, recovery boards and accessories in Australia and New Zealand and a growing presence in the United States.

As noted above, the Company has a wide variety of technical outdoor equipment and lifestyle products that are sold to a variety of customers in multiple end markets. While there are multiple products sold, the terms and nature of revenue recognition policy is similar for all segments.

2018

CLARUS CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

(in thousands, except per share amounts)

Financial information for our segments, as well as revenue by geography, which the Company believes provides a meaningful depiction how the nature, timing and uncertainty of revenue are affected by economic factors, is as follows:


	Three Months Ended				Three Months Ended
	March 31, 2022		March 31, 2021		March 31, 2023		March 31, 2022
Sales to external customers:
Outdoor
Domestic sales	$	25,629	$	25,760	$	21,565	$	25,629
International sales		25,893		26,036		31,210		25,893
Total Outdoor		51,522		51,796		52,775		51,522
Precision Sport
Domestic sales		27,443		21,813		20,719		27,443
International sales		5,675		1,722		6,387		5,675
Total Precision Sport		33,118		23,535		27,106		33,118
Adventure
Domestic sales		9,235		-		2,632		9,235
International sales		19,401		-		14,871		19,401
Total Adventure		28,636		-		17,503		28,636
Total sales to external customers		113,276		75,331		97,384		113,276
Segment operating income:
Segment operating income (loss):
Outdoor		1,888		3,445		1,490		1,888
Precision Sport		11,780		5,962		7,225		11,780
Adventure		2,124		-		(1,148)		2,124
Total segment operating income		15,792		9,407		7,567		15,792
Transaction costs		(1,201)		(476)		(74)		(1,201)
Contingent consideration expense		(763)		-
Contingent consideration benefit (expense)						1,565		(763)
Corporate and other expenses		(5,782)		(3,382)		(4,280)		(5,782)
Interest expense, net		(1,116)		(238)		(2,746)		(1,116)
Income before income tax	$	6,930	$	5,311	$	2,032	$	6,930

There were no intercompany sales between the Outdoor, Precision Sport, and Adventure segments for the periods presented.

Total assets by segment, as of March 31, ~~2022~~2023 and December 31, ~~2021,~~2022, were as follows:



	March 31, 2022		December 31, 2021		March 31, 2023		December 31, 2022

Outdoor	$	166,470	$	166,751	$	175,390	$	175,820
Precision Sport		153,687		142,549		143,000		144,224
Adventure		316,869		298,364		178,485		181,867
Corporate		24,056		24,163		17,884		16,234
	$	661,082	$	631,827	$	514,759	$	518,145

2119

CLARUS CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

(in thousands, except per share amounts)

Capital expenditures, depreciation and amortization by segment is as follows.


	Three Months Ended				Three Months Ended
	March 31, 2022		March 31, 2021		March 31, 2023		March 31, 2022
Capital expenditures:
Outdoor	$	1,236	$	692	$	323	$	1,236
Precision Sport		450		655		739		450
Adventure		214		-		409		214
Total capital expenditures	$	1,900	$	1,347	$	1,471	$	1,900
Depreciation:
Outdoor	$	817	$	713	$	673	$	817
Precision Sport		781		643		852		781
Adventure		234		-		266		234
Total depreciation	$	1,832	$	1,356	$	1,791	$	1,832
Amortization:
Outdoor	$	255	$	259	$	258	$	255
Precision Sport		692		938		508		692
Adventure		3,173		-		2,510		3,173
Total amortization	$	4,120	$	1,197	$	3,276	$	4,120

~~NOTE 17. SUBSEQUENT EVENTS~~

~~Debt~~

~~On April 18, 2022 (the “Effective Date”), the Company entered into an Amended and Restated Credit Agreement with JPMorgan Chase Bank, N.A. (the “Restated Credit Agreement”).~~

The Term Loans were fully drawn on the Effective Date and cannot be reborrowed. The Restated Credit Agreement provides for quarterly amortization payments of the Term Loans on the last business day of each March, June, September and December, commencing on June 30, 2022. Through and including the payment due on March 31, 2023, the scheduled amortization payment is $1,563 per quarter, and each scheduled amortization payment due thereafter through the Maturity Date is $3,125 per quarter.

2220

CLARUS CORPORATION

MANAGEMENT DISCUSSION AND ANALYSIS

(in thousands, except per share amounts)

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Forward-Looking Statements

Please note that in this Quarterly Report on Form 10-Q Clarus Corporation (which may be referred to as the “Company,” “Clarus,” “we,” “our” or “us”) may use words such as “appears,” “anticipates,” “believes,” “plans,” “expects,” “intends,” “future” and similar expressions which constitute forward-looking statements within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are made based on our expectations and beliefs concerning future events impacting the Company and therefore involve a number of risks and uncertainties. We caution that forward-looking statements are not guarantees and that actual results could differ materially from those expressed or implied in the forward-looking statements.

Potential risks and uncertainties that could cause the actual results of operations or financial condition of the Company to differ materially from those expressed or implied by forward-looking statements in this Quarterly Report on Form 10-Q include, but are not limited to, the overall level of consumer demand on our products; general economic conditions and other factors affecting consumer confidence, preferences, and behavior; disruption and volatility in the global currency, capital and credit markets; the financial strength of the Company’s customers; the Company’s ability to implement its business strategy; the ability of the Company to execute and integrate acquisitions; changes in governmental regulation, legislation or public opinion relating to the manufacture and sale of bullets and ammunition, and the possession and use of firearms and ammunition by our customers; the Company’s exposure to product liability or product warranty claims and other loss contingencies; disruptions and other impacts to the Company’s business, as a result of an outbreak of disease or similar public health threat, such as the COVID-19 global pandemic, and government actions and restrictive measures implemented in response; stability of the Company’s manufacturing facilities and suppliers, as well as consumer demand for our products, in light of disease epidemics and health-related concerns such as the COVID-19 global pandemic; the impact that global climate change trends may have on the Company and its suppliers and customers, increased focus on sustainability issues as a result of global climate ~~change,~~change; regulatory or market responses to global climate change; the Company's ability to protect patents, trademarks and other intellectual property rights; any breaches of, or interruptions in, our information systems; the ability of our information technology systems or information security systems to operate effectively, including as a result of security breaches, viruses, hackers, malware, natural disasters, vendor business interruptions or other causes; our ability to properly maintain, protect, repair or upgrade our information technology systems or information security systems, or problems with our transitioning to upgraded or replacement systems; the impact of adverse publicity about the Company and/or its brands, including without limitation, through social media or in connection with brand damaging events and/or public perception; fluctuations in the price, availability and quality of raw materials and contracted products as well as foreign currency fluctuations; ongoing disruptions and delays in the shipping and transportation of our products due to port congestion, container ship availability and/or other logistical challenges; the impact of political unrest, natural disasters or other crises, terrorist acts, acts of war and/or military operations; our ability to utilize our net operating loss carryforwards; changes in tax laws and liabilities, tariffs, legal, regulatory, political and economic risks; the Company’s ability to maintain a quarterly dividend; and any material differences in the actual financial results of the Company’s past and future acquisitions, including, without limitation, its previous acquisition of Rhino-Rack ~~acquisition~~ as compared with expectations, including the impact of ~~the acquisition~~acquisitions and any recognition of impairment or other charges relating to any such acquisitions on the Company’s future earnings per share. More information on potential factors that could affect the Company’s financial results is included from time to time in the Company’s public reports filed with the Securities and Exchange Commission, including the Company’s Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K. All forward-looking statements included in this Quarterly Report on Form 10-Q are based upon information available to the Company as of the date of this Quarterly Report on Form 10-Q, and speak only as of the date hereof. We assume no obligation to update any forward-looking statements to reflect events or circumstances after the date of this Quarterly Report on Form 10-Q.

Overview

Headquartered in Salt Lake City, Utah, Clarus Corporation (which may be referred to as the “Company,” “Clarus,” “we,” “our” or “us”) is a global leading designer, developer, manufacturer and distributor of best-in-class outdoor equipment and lifestyle products focused on the outdoor and consumer enthusiast markets. Our mission is to identify, acquire and grow outdoor “super fan” brands through our unique “innovate and accelerate” strategy. We define a “super fan” brand as a brand that creates the world’s pre-eminent, performance-defining product that the best-in-class user cannot live without. Each of our brands has a long history of continuous product innovation for core and everyday users alike. The Company’s products are principally sold globally under the Black Diamond®, Sierra®, Barnes® ~~and~~, Rhino-Rack® and MAXTRAX® brand names through outdoor specialty and online retailers, our own websites, distributors and original equipment manufacturers. Our portfolio of iconic brands is well-positioned for sustainable, long-term growth underpinned by powerful industry trends across the outdoor and adventure sport end markets.

CLARUS CORPORATION

MANAGEMENT DISCUSSION AND ANALYSIS

(in thousands, except per share amounts)

One of the key elements of our sustained financial performance is our persistent focus on brand building through product initiatives. Our iconic brands are rooted in performance-defining technologies that enable our customers to have their best days outdoors. We have a long history of technical innovation and product development, backed by an extensive patent portfolio that continues to evolve and

~~CLARUS CORPORATION~~

~~MANAGEMENT DISCUSSION AND ANALYSIS~~

~~(in thousands, except per share amounts)~~

advance our markets. We currently employ approximately 120 engineers across the portfolio, focusing on enhancing our customers’ performance in the most critical moments. Our commitment to quality, rigorous safety, and ultimately best-in-class design is evidenced by outstanding industry recognition, as we have received numerous product awards across our portfolio of super fan brands.

Each of our brands represents a unique customer value proposition. Supported by six decades of proven innovation, Black Diamond is an established global leader in high-performance, activity-based climbing, skiing, and technical mountain sports equipment. The brand is synonymous with premium performance, safety and reliability. Our Sierra and Barnes brands have been leading specialty manufacturers of bullets and ammunition for over 50 years. Since 1947, Sierra has been dedicated to manufacturing the highest-quality, most accurate bullets in the world for hunting and sport shooting enthusiasts. Barnes traces its history back to 1932, and since 1989 has manufactured technologically-advanced, lead-free bullets and premium ammunition for hunters, range shooters, military and law enforcement professionals. Founded in 1992, our Rhino-Rack brand is a globally-recognized designer and distributor of highly-engineered automotive roof racks and accessories to enhance the outdoor enthusiast’s overlanding experience. Founded in 2005, our MAXTRAX brand offers high-quality overlanding and off-road vehicle recovery and extraction tracks for the overland and off-road market.

Clarus, incorporated in Delaware in 1991, acquired Black Diamond Equipment, Ltd. (“Black Diamond Equipment”) in May 2010 and changed its name to Black Diamond, Inc. in January 2011. In October 2012, we acquired PIEPS Holding GmbH and its subsidiaries (collectively, “PIEPS”). On August 14, 2017, the Company changed its name from Black Diamond, Inc. to Clarus Corporation and its stock ticker symbol from “BDE” to “CLAR” on the NASDAQ stock exchange.

Impact of COVID-19

The global outbreak of COVID-19 was declared a pandemic by the World Health Organization and a national emergency by each of the U.S., European, and Australian governments in March 2020, with governments world-wide implementing safety measures restricting travel and requiring citizen lockdowns and self-confinements for quarantining purposes. ~~This has~~During the years ended December 31, 2020, 2021, and 2022, this had negatively affected the U.S., European, Australian and global economies, disrupted global supply chains, and resulted in significant transport restrictions and disruption of global financial markets.

~~The~~An outbreak of disease or similar public health threat, such as the COVID-19 pandemic, could have, and in the case of the COVID-19 pandemic has ~~significantly impacted~~had and may continue to have a significant impact on the global supply chain, with restrictions and limitations on related activities causing disruption and delay, along with increased raw material, storage, and shipping costs. ~~These~~Any of these disruptions and delays ~~have strained~~may strain domestic and international supply chains, which ~~have affected and~~ could ~~continue to~~ negatively affect the flow or availability of certain critical raw materials and finished good products that the Company relies upon. Furthermore, the foregoing impacts may significantly ~~increased~~increase demand from online sales channels, including our website, ~~has impacted~~and could impact our logistical operations, including our fulfillment and shipping functions, which ~~has resulted~~may result in periodic delays in the delivery of our products.

We expect ~~a continued~~that an outbreak of disease or similar public health threat, such as the COVID-19 pandemic, could have, and in the case of the COVID-19 pandemic may continue to have, an impact on the Company’s sales and profitability in future ~~periods due to the ongoing impact of the pandemic.~~periods. The duration of these trends and the magnitude of such impacts cannot be precisely estimated at this time, as they are affected by a number of factors (some of which are outside management’s control), including those presented in Part I, Item 1A. Risk Factors of our Annual Report on Form 10-K for the year ended December 31, ~~2021.~~2022.

CLARUS CORPORATION

MANAGEMENT DISCUSSION AND ANALYSIS

(in thousands, except per share amounts)

Critical Accounting Policies and Use of Estimates

Management’s discussion of our financial condition and results of operations is based on the consolidated financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”). The preparation of the consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities ~~and disclosure~~

~~CLARUS CORPORATION~~

~~MANAGEMENT DISCUSSION AND ANALYSIS~~

~~(in thousands, except per share amounts)~~

~~of contingent liabilities~~ at the date of the consolidated financial statements. Estimates also affect the reported amounts of revenues and expenses during the reporting periods. ~~We continually evaluate our~~Our critical accounting policies that require the use of estimates and assumptions ~~including those related to derivatives, revenue recognition, income taxes and valuation of long-lived assets, goodwill and other intangible assets.~~were discussed in detail in our Annual Report on Form 10-K for the year ended December 31, 2022. We base our estimates on historical experience and other assumptions that are believed to be reasonable under the circumstances. Actual results could differ from these estimates.

There have been no significant changes to our critical accounting policies as described in our Annual Report on Form 10-K for the year ended December 31, ~~2021.~~2022.

Accounting Pronouncements Issued Not Yet Adopted

~~See “Accounting Pronouncements Not Yet Adopted” in Note 1 of the unaudited condensed consolidated financial statements.~~None

‎

2523

CLARUS CORPORATION

MANAGEMENT DISCUSSION AND ANALYSIS

(in thousands, except per share amounts)

Results of Operations

Three Months Ended March 31, ~~2022~~2023 Compared to Three Months Ended March 31, ~~2021~~2022

The following presents a discussion of operations for the three months ended March 31, ~~2022,~~2023, compared with the three months ended March 31, ~~2021.~~2022.


	Three Months Ended				Three Months Ended
	March 31, 2022		March 31, 2021		March 31, 2023		March 31, 2022

Sales
Domestic sales	$	62,307	$	47,573	$	44,916	$	62,307
International sales		50,969		27,758		52,468		50,969
Total sales		113,276		75,331		97,384		113,276

Cost of goods sold		69,024		48,281		61,363		69,024
Gross profit		44,252		27,050		36,021		44,252

Operating expenses
Selling, general and administrative		34,175		20,885		32,819		34,175
Transaction costs		1,201		476		74		1,201
Contingent consideration expense		763		-
Contingent consideration (benefit) expense						(1,565)		763

Total operating expenses		36,139		21,361		31,328		36,139

Operating income		8,113		5,689		4,693		8,113

Other expense
Other income (expense)
Interest expense, net		(1,116)		(238)		(2,746)		(1,116)
Other, net		(67)		(140)		85		(67)

Total other expense, net		(1,183)		(378)		(2,661)		(1,183)

Income before income tax		6,930		5,311		2,032		6,930
Income tax expense (benefit)		1,621		(366)
Income tax expense						434		1,621
Net income	$	5,309	$	5,677	$	1,598	$	5,309

Sales

Total sales ~~increased $37,945,~~decreased $15,892, or ~~50.4%~~14.0%, to $97,384 during the three months ended March 31, 2023, compared to total sales of $113,276 during the three months ended March 31, ~~2022, compared to total sales of $75,331 during the three months ended March 31, 2021.~~ 2022. The ~~increase~~decrease in sales was primarily attributable to ~~$28,636 of sales from the inclusion of Rhino-Rack and MAXTRAX in the current period. Additionally, there was an increase in the quantity of new and existing precision sport products sold of $9,583.~~ ~~There was also an increase in the quantity of new and existing outdoor products sold during the period of $253. This was partially offset by~~ a decrease in sales at the Adventure and Precision Sport segments of ~~$527~~$11,133 and $6,012, respectively, partially offset by an increase in sales at the Outdoor segment of $1,253.

Sales in the Adventure segment decreased due to lower consumer demand given the challenging market conditions and the difficult macro-environment in both Australia and North America. Included in the Adventure segment decrease in sales is $968 of foreign exchange impact due to the strengthening of the U.S. dollar against foreign currencies during the three months ended March 31, ~~2022,~~2023, compared to the prior period. Sales in the Precision Sport segment decreased due to ongoing supply chain challenges limiting ammunition sales. Sales in the Outdoor segment increased due to growth in the direct-to-consumer channels, and European and IGD markets, nearly offset by continued weakness at the Company’s key North American retail accounts. Increases in sales in the Outdoor segment were partially offset by $1,391 of foreign exchange impact due to the strengthening of the U.S. dollar against foreign currencies during the three months ended March 31, 2023, compared to the prior period.

Domestic sales ~~increased $14,734,~~decreased $17,391, or ~~31.0%~~27.9%, to $44,916 during the three months ended March 31, 2023, compared to domestic sales of $62,307 during the three months ended March 31, ~~2022, compared to domestic sales of $47,573 during the three months ended March 31, 2021.~~2022. The ~~increase~~decrease in sales was primarily attributable to $9,235 of sales from the inclusion of Rhino-Rack and MAXTRAX in the current period. Additionally, there was an increase in the quantity of new and existing precision sport products sold of $5,630. This was partially offset by a decrease in the quantity of new and existing outdoor products sold during the period of $131.

International sales increased $23,211, or 83.6%, to $50,969 during the three months ended March 31, 2022, compared to international sales of $27,758 during the three months ended March 31, 2021. The increase in sales was primarily attributable to $19,401 of sales from the inclusion of Rhino-Rack and MAXTRAX in the current period. Additionally, there was an increase in the quantity of new and existing precision sport products sold of $3,953. There was also an increase in the quantity of new and existing outdoor products sold during the period of $384. This was partially offset by a decrease in sales at the Precision Sport, Adventure, and Outdoor segments of ~~$527 due to the strengthening of the U.S. dollar against~~$6,724, $6,603, and $4,064, respectively.

2624

CLARUS CORPORATION

MANAGEMENT DISCUSSION AND ANALYSIS

(in thousands, except per share amounts)

International sales increased $1,499, or 2.9%, to $52,468 during the three months ended March 31, 2023, compared to international sales of $50,969 during the three months ended March 31, 2022. The increase in sales was primarily attributable to an increase in sales at the Outdoor and Precision Sport segments of $5,317 and $712, respectively, partially offset by a decrease in sales at the Adventure segment of $4,530. Sales in the Outdoor and Adventure segments were reduced by $1,391 and $968, respectively, of foreign exchange impact due to the strengthening of the U.S. dollar against foreign currencies during the three months ended March 31, ~~2022,~~2023, compared to the prior period.

Cost of Goods Sold

Cost of goods sold ~~increased $20,743~~decreased $7,661, or ~~43.0%~~11.1%, to $61,363 during the three months ended March 31, 2023, compared to cost of goods sold of $69,024 during the three months ended March 31, ~~2022, compared to cost of goods sold of $48,281 during the three months ended March 31, 2021.~~2022. The ~~increase~~decrease in cost of goods sold was primarily attributable to ~~an increase~~a decrease in the number of units sold.

Gross Profit

Gross profit ~~increased $17,202~~decreased $8,231, or ~~63.6%~~18.6%, to $36,021 during the three months ended March 31, 2023, compared to gross profit of $44,252 during the three months ended March 31, ~~2022, compared to gross profit of $27,050~~2022. Gross margin was 37.0% during the three months ended March 31, ~~2021. Gross~~2023, compared to a gross margin ~~was~~of 39.1% during the three months ended March 31, ~~2022, compared to a gross margin of 35.9% during the three months ended March 31, 2021.~~2022. Gross margin during the three months ended March 31, ~~2022, increased~~2023, decreased compared to the prior year due to ~~a favorable~~changes in channel and product mix ~~from~~of 2.2%, unfavorable foreign currency exchange movement of 1.5%, and a 1.3% negative impact due to higher ~~margin products. Gross margin also benefited~~inventory reserves. Channel and product mix were impacted by lower open-to-buys from the ~~inclusion of Rhino-Rack and MAXTRAX. However,~~Company’s key North American retail partners in the ~~benefit from MAXTRAX was~~Outdoor segment which negatively impacted gross margin. The decreases were partially offset by ~~a decrease in~~easing freight costs which positively impacted gross margin ~~of 0.2% due to the sale of MAXTRAX inventory that was recorded at its fair value in purchase accounting during the three months ended March 31, 2022.~~by 2.9%.

Selling, General and Administrative

Selling, general, and administrative expenses ~~increased $13,290,~~decreased $1,356, or ~~63.6%~~4.0%, to $32,819 during the three months ended March 31, 2023, compared to selling, general and administrative expenses of $34,175 during the three months ended March 31, ~~2022, compared~~2022. The decrease is primarily due to ~~selling, general and administrative expenses~~a decrease in stock compensation of ~~$20,885~~$2,034 during the three months ended March 31, 2021. The increase in selling, general and administrative expenses is due to the inclusion of Rhino-Rack and MAXTRAX, which contributed $8,142 and $1,231, respectively. The remaining increase was attributable to the Company’s investments in the brand related activities of sales, direct-to-consumer, marketing, and warehousing and logistics, focused on supporting its strategic initiatives around expanding distribution, elevating brand awareness and being easier to do business with and an increase of stock compensation of $1,843 during the three months ended March 31, 20222023, compared to the prior year. The decrease was partially offset by an increase in administrative expense at the Outdoor segment of $1,824, primarily related to a higher investment in employee costs and the direct-to-consumer channel. Additionally, the Company incurred lower costs at the Adventure segment of $1,049 primarily related to disciplined cost management and a decrease in amortization expense.

Transaction Costs

Transaction expense ~~increased~~decreased to $74 during the three months ended March 31, 2023, compared to transaction costs of $1,201 during the three months ended March 31, 2022, ~~compared to transaction costs of $476 during the three months ended March 31, 2021,~~ which consisted of expenses related to the Company’s various acquisition efforts.

Contingent Consideration (Benefit) Expense

Contingent consideration ~~expense increased~~changed to ~~$763~~a benefit of $1,565 during the three months ended March 31, ~~2022,~~2023, compared to $0$763 contingent consideration expense during the three months ended March 31, ~~2021,~~2022, which consisted of changes in the estimated fair value of contingent consideration ~~liabilities.~~liabilities associated with our acquisition of MAXTRAX in 2021.

Interest Expense, net

Interest expense, net increased to $2,746 during the three months ended March 31, 2023, compared to interest expense, net of $1,116 during the three months ended March 31, ~~2022, compared to interest expense, net of $238 during the three months ended March 31, 2021.~~2022. The increase in interest expense recognized during the three months ended March 31, ~~2022~~2023 was primarily associated with the increase in ~~the average outstanding debt amounts~~interest rates during the period compared to the prior ~~year and the recording of certain debt issuance costs.~~year.

Other, net

Other, net, ~~changed~~increased by ~~$73,~~$152, or ~~52.1%~~226.9%, to ~~$67~~$85 during the three months ended March 31, ~~2022,~~2023, compared to other, net of ~~$140~~$(67) during the three months ended March 31, ~~2021.~~2022. The change in other, net, was primarily attributable to a decrease in remeasurement losses recognized on the Company’s foreign denominated accounts receivable and accounts ~~payable. The decrease~~payable, which was partially offset by changes onin mark-to-market adjustments on non-hedged foreign currency ~~contracts.~~

~~Income Taxes~~

~~Income tax expense changed by $1,987, or 542.9%, to an expense of $1,621~~contracts during the three months ended March 31, 2022, compared to a benefit of $366 during the same period in 2021. Our effective income tax rate was 23.4% for the three months ended March 31, 2022, and differed compared to the statutory tax rates due to the impact of foreign earnings taxed at applicable statutory rates and2023.

2725

CLARUS CORPORATION

MANAGEMENT DISCUSSION AND ANALYSIS

(in thousands, except per share amounts)

Income Taxes

Income tax expense decreased by $1,187, or 73.2%, to $434 during the three months ended March 31, 2023, compared to income tax expense of $1,621 during the same period in 2022. Our effective income tax rate was a benefit of 21.4% for the three months ended March 31, 2023, and differed compared to the statutory tax rates primarily due to the impact of stock compensation, research and experimentation expenditures and credits, and discrete stock option windfall benefits. For the three months ended March 31, 2022, our effective income tax rate was 23.4% and differed compared to the statutory tax rates due to the impact of foreign earnings taxed at applicable statutory rates and permanent book to tax differences related to incentive stock options and officer compensation limitations. For the three months ended March 31, 2021, our effective income tax rate was (6.9%) and differed compared to the statutory tax rates due to a release of a partial valuation allowance of the deferred tax assets and a discrete charge recorded during the period.

Liquidity and Capital Resources

Three Months Ended March 31, ~~2022~~2023 Compared to Three Months Ended March 31, ~~2021~~2022

Our primary ongoing funding requirements are for working capital, expansion of our operations (both organically and through acquisitions) and general corporate needs, as well as investing activities associated with the various brands. We plan to fund these activities through a combination of our future operating cash flows and borrowings on our revolving credit facility which had approximately ~~$69,519~~$61,000 available to borrow at March 31, ~~2022.~~2023, while currently maintaining compliance with the consolidated total leverage ratio per the Restated Credit Agreement of 3.75 to 1. We believe that our liquidity requirements and contractual obligations for at least the next 12 months will be adequately covered by cash provided by operations and our existing revolving credit facility. Additionally, long-term contractual obligations are also currently expected to be funded from cash from operations and availability under our existing credit facilities.

~~On January 3, 2022,~~ For additional information regarding the ~~Company entered into Amendment No. 4 (“Amendment No. 4”), as previously amended, with JPMorgan Chase Bank, N.A., as administrative agent, and~~Company’s existing credit facilities, see the ~~lenders from time to time party thereto (collectively, the~~section titled “Credit Agreement”). Amendment No. 4, among other things, permits (i) the Company to borrow in Australian Dollars and New Zealand Dollars in order to support the operations of the Company in Australia and New Zealand and (ii) provides for addbacks to EBITDA, for debt covenant purposes, (as defined in the Credit Agreement) under the Credit Agreement for expenses relating to activities in respect of acquisitions, dispositions, investments and financings (whether or not these transactions are actually consummated). The Company is required to repay the term loan through quarterly payments of $1,563 each beginning with September 30, 2021, increasing to $3,125 beginning September 30, 2022, and any remaining obligations will be repaid in full on the maturity date of the Credit Agreement of May 3, 2024. The maximum consolidated total leverage ratio permitted under the Credit Agreement is 4.25:1.00. below.

At March 31, ~~2022,~~2023, we had total cash of ~~$16,451,~~$10,310, compared to a cash balance of ~~$19,465~~$12,061 at December 31, ~~2021.~~2022. At March 31, ~~2022,~~2023, the Company had ~~$11,577~~$6,108 of the ~~$16,451~~$10,310 in cash held by foreign entities, of which ~~$9,375~~$4,528 is considered permanently reinvested.

The following presents a discussion of cash flows for the condensed consolidated three months ended March 31, ~~2022~~2023 compared with the condensed consolidated three months ended March 31, ~~2021.~~2022.


	Three Months Ended				Three Months Ended
	March 31, 2022		March 31, 2021		March 31, 2023		March 31, 2022

Net cash used in operating activities	$	(10,795)	$	(2,518)
Net cash provided by (used in) operating activities					$	3,199	$	(10,795)
Net cash used in investing activities		(1,900)		(1,347)		(1,383)		(1,900)
Net cash provided by (used in) financing activities		8,467		(7,196)
Net cash (used in) provided by financing activities						(3,138)		8,467
Effect of foreign exchange rates on cash		1,214		(203)		(429)		1,214
Change in cash		(3,014)		(11,264)		(1,751)		(3,014)
Cash, beginning of year		19,465		17,789		12,061		19,465
Cash, end of period	$	16,451	$	6,525	$	10,310	$	16,451

Net Cash From Operating Activities

Net cash ~~used in~~provided by operating activities was ~~$10,795~~$3,199 during the three months ended March 31, ~~2022,~~2023, compared to net cash used in operating activities of ~~$2,518~~$10,795 during the three months ended March 31, ~~2021.~~2022. The change in net cash ~~used in~~provided by (used in) operating activities during ~~2022~~2023 is primarily due to ~~an increase~~a decrease in ~~net operating assets, or non-cash~~cash outflows related to working capital of ~~$15,586,~~$23,517, partially offset by an increase in ~~amortization~~contingent consideration benefit, and a decrease in stock compensation during the three months ended March 31, ~~2022,~~2023, compared to the same period in ~~2021.~~2022.

CLARUS CORPORATION

MANAGEMENT DISCUSSION AND ANALYSIS

(in thousands, except per share amounts)

Free cash flow, defined as net cash provided by (used in) ~~provided by~~ operating activities less capital expenditures, of ~~($12,695)~~$1,728 was ~~used~~generated during the three months ended March 31, ~~2022~~2023 compared to ~~($3,865)~~$(12,695) used during the same period in ~~2021.~~2022. The Company believes that the non-GAAP measure, free cash flow, provides an understanding of the capital required by the Company to expand its asset base. A reconciliation of free cash flows to the nearest comparable GAAP financial ~~measures~~measure is set forth below:

~~CLARUS CORPORATION~~

~~MANAGEMENT DISCUSSION AND ANALYSIS~~

~~(in thousands, except per share amounts)~~

	Three Months Ended
	March 31, 2022		March 31, 2021		Three Months Ended
					March 31, 2023		March 31, 2022
Net cash used in operating activities	$	(10,795)	$	(2,518)

Net cash provided by (used in) operating activities					$	3,199	$	(10,795)
Purchase of property and equipment		(1,900)		(1,347)		(1,471)		(1,900)
Free cash flow	$	(12,695)	$	(3,865)	$	1,728	$	(12,695)

Net Cash From Investing Activities

Net cash used in investing activities was $1,383 during the three months ended March 31, 2023, compared to $1,900 during the three months ended March 31, ~~2022, compared to $1,347 during the three months ended March 31, 2021.~~2022. The ~~increase~~decrease in cash used during the three months ended March 31, ~~2022~~2023 is primarily due to ~~an increase~~a decrease in purchases of property and equipment, compared to the same period in ~~2021.~~2022.

Net Cash From Financing Activities

Net cash used in financing activities was $3,138 during the three months ended March 31, 2023, compared to net cash provided by financing activities ~~was~~of $8,467 during the three months ended March 31, ~~2022, compared to net cash used of $7,196 during the three months ended March 31, 2021.~~2022. The ~~increase~~decrease in cash provided during the three months ended March 31, ~~2022,~~2023, compared to the same period in ~~2021~~2022 was primarily due to ~~the~~a decrease in net proceeds to the revolving line of ~~credit. Cash used by financing activities during the three months ended March 31, 2021 was primarily due to the net repayments to the revolving line of~~ credit and ~~repayments of the~~ term loan.

Net Operating Loss

As of December 31, ~~2021,~~2022, the Company had net operating loss carryforwards (“NOLs”) and research and experimentation credit for U.S. federal income tax purposes of ~~$60,712~~$17,663 and ~~$2,289,~~$2,651, respectively. The Company believes its U.S. Federal NOLs will substantially offset its future U.S. Federal income taxes until expiration. The majority of the Company’s pre-tax income is currently earned and expected to be earned in the U.S., or taxed in the U.S. as Subpart F income and will be offset with the NOLs. The Company has ~~$60,712~~$17,663 of NOLs, of which, ~~$39,507~~$1,851 expire on December 31, ~~2022.~~2023. These NOLs are subject to compliance with Section 382 of the Internal Revenue Code of 1986, as amended.

As of December 31, ~~2021,~~2022, the Company’s gross deferred tax asset was ~~$38,184.~~$32,972. The Company has recorded a valuation allowance of ~~$4,378,~~$3,323, resulting in a net deferred tax asset of ~~$33,806,~~$29,649, before deferred tax liabilities of ~~$46,653.~~$30,243. The Company has provided a valuation allowance against a portion of the net deferred tax assets as of December 31, ~~2021,~~2022, because the ultimate realization of those assets does not meet the more-likely-than-not criteria. The majority of the Company’s deferred tax assets consist of net operating loss carryforwards for federal tax purposes. If a change in control were to occur, these could be limited under Section 382 of the Internal Revenue Code of 1986 (“Code”), as amended.

Credit Agreement

As of March 31, ~~2022,~~2023, the Company had drawn ~~approximately $30,481~~$18,538 ofon the ~~$100,000~~ revolving loan ~~commitment that was available for borrowing under the Existing Credit Agreement,~~ and ~~$120,313~~$118,750 was outstanding under the term loan ~~commitment.~~. Approximately $61,000 in additional funds were available to borrow on the revolving loan at March 31, 2023, while maintaining compliance with the consolidated total leverage ratio per the Restated Credit Agreement (as defined below) of 3.75 to 1. As of March 31, ~~2022,~~2023, the interest ~~rate for each~~rates on the revolving loan ~~was 2.3750%~~and term loan commitments were approximately 6.8%.. The Company was in compliance with the debt covenants set forth in the ~~Existing~~Restated Credit Agreement as of March 31, ~~2022.~~2023.

On April 18, 2022 (the “Effective Date”), the Company, Black Diamond Retail, Inc., Black Diamond Retail – Alaska, LLC, Sierra Bullets, L.L.C., SKINourishment, LLC, Black Diamond Retail – Colorado, LLC, Black Diamond Retail – Montana, LLC, Black Diamond Retail – Wyoming, LLC, Barnes Bullets-Mona, LLC, Black Diamond Retail – Oregon, LLC, Black Diamond Retail – Vermont, LLC (collectively with the Company, the “Borrowers”) and the other loan parties party thereto (together with the Borrowers, each a “Loan Party”, and collectively, the “Loan Parties”) entered into an Amended and Restated Credit Agreement with JPMorgan Chase Bank, N.A., as administrative agent (the “Administrative Agent”) and the lenders party thereto (the “Restated Credit Agreement”) pursuant to which the existing Credit Agreement, dated as of May 3, 2019 (as amended prior to the Effective Date, the “Existing Credit Agreement”) by and among the Company, the lenders and loan parties from time to time party thereto and the Administrative Agent

CLARUS CORPORATION

MANAGEMENT DISCUSSION AND ANALYSIS

(in thousands, except per share amounts)

was amended and restated in its entirety. Each of the Loan Parties, other than the Company, is a direct or indirect subsidiary of the Company.

The Restated Credit Agreement provides for borrowings of up to $300,000 under a secured revolving credit facility (the “Revolving Loans”) (including up to $5,000 for letters of credit), and borrowings of up to $125,000 under a secured term loan facility (the “Term Loans”). The Restated Credit Agreement also permits the Borrowers, subject to certain requirements, to arrange with lenders for an aggregate of up to $175,000 of additional revolving and/or term loan commitments (both of which are currently uncommitted), for potential aggregate revolving and term loan commitments under the Restated Credit Agreement of up to $600,000. The proceeds of loans made under the Restated Credit Agreement may be used for working capital and general corporate purposes, including acquisitions

~~CLARUS CORPORATION~~

~~MANAGEMENT DISCUSSION AND ANALYSIS~~

~~(in thousands, except per share amounts)~~

permitted under the Restated Credit Agreement. The Restated Credit Agreement matures on April 18, 2027 (the “Maturity Date”), at which time the revolving commitments thereunder will terminate and all outstanding Revolving Loans and Term Loans, together with all accrued and unpaid interest thereon, must be repaid.

The Borrowers may elect to have the Revolving Loans and Term Loans under the Restated Credit Agreement bear interest at an applicable rate plus either:

(i) in the case of alternate base rate borrowings, a rate per annum generally equal to the greatest of:

(a)

the prime rate in effect on such day;

(b)

0.50% plus the greater of the Federal Reserve Bank of New York’s effective federal funds rate or the Federal Reserve Bank of New York’s overnight bank funding rate in effect on such day; and

(c)

1.00% plus the adjusted term SOFR rate for a 1-month interest period;

provided that, in certain circumstances where the alternate base rate is being used as an alternate rate of interest, the alternate base rate shall be determined only according to (a) and (b), and shall be subject to a 1.00% floor; or

(ii) in the case of term benchmark borrowings, a rate per annum as follows:

(a)

for borrowings denominated in U.S. Dollars, the term SOFR rate (based on one, three or six-month interest periods) plus 0.10%, subject to a 0.00% floor; or

(b)

for borrowings denominated in a Foreign Currency, the applicable rate for such Foreign Currency set forth in the Restated Credit Agreement.

The applicable rate for these borrowings will range from 0.50% to 1.625% per annum, in the case of alternate base rate borrowings, and 1.50% to 2.625% per annum, in the case of term benchmark borrowings. The applicable rate was initially 0.875% per annum, in the case of alternate base rate borrowings, and 1.875% per annum, in the case of term benchmark borrowings, however, these initial applicable rates may be adjusted from time to time based upon the level of the Company’s consolidated total leverage ratio, which is more fully discussed in the Restated Credit Agreement. If one or more of the above interest rates are not determinable, or under certain other circumstances set forth in the Restated Credit Agreement, a substitute or alternative interest rate may apply under the Restated Credit Agreement.

The Restated Credit Agreement also requires the Borrowers to pay a commitment fee on the unused portion of the revolving loan commitments. Such commitment fee will range between 0.15% and 0.30% per annum, and is also based upon the level of the Company’s consolidated total leverage ratio, which is more fully discussed in the Restated Credit Agreement. The Company is also obligated to pay other customary closing fees, arrangement fees, administration fees and letter of credit fees for a credit facility of this size and type.

The Restated Credit Agreement contains customary affirmative and negative covenants, including limitations on the ability of the Company and its subsidiaries to perform the following, subject to certain customary exceptions, qualifications and “baskets”: (i) incur additional debt; (ii) create liens; (iii) engage in mergers, consolidations, certain divisions, liquidations or dissolutions other than in certain permitted instances as described in the Restated Credit Agreement; (iv) substantially change the business conducted by the

CLARUS CORPORATION

MANAGEMENT DISCUSSION AND ANALYSIS

(in thousands, except per share amounts)

Company and its subsidiaries; (v) make certain investments, loans, advances, guarantees and acquisitions other than in certain permitted instances as described in the Restated Credit Agreement; (vi) sell assets; (vii) pay dividends or make distributions or other restricted payments if certain conditions in the Restated Credit Agreement are not fulfilled; (viii) prepay other indebtedness; (ix) engage in certain transactions with affiliates; (x) enter into agreements that restrict dividends from subsidiaries or the ability of subsidiaries to grant liens upon their assets; (xi) amend certain charter documents and material agreements governing subordinated indebtedness; (xii) permit the consolidated total leverage ratio, which is to be determined for each quarter end on a trailing twelve month basis, from exceeding a limit of ~~3:75~~3.75 to 1, provided, that, subject to certain terms and conditions set forth in the Restated Credit Agreement, so long as no Event of Default (as defined in the Restated Credit Agreement) exists at such time or would result therefrom, the Company may elect to increase the maximum consolidated total leverage ratio permitted under the Restated Credit Agreement to 4.25:1.00 for a period of four

~~CLARUS CORPORATION~~

~~MANAGEMENT DISCUSSION AND ANALYSIS~~

~~(in thousands, except per share amounts)~~

consecutive fiscal quarters in connection with any acquisition permitted under the Restated Credit Agreement for which the aggregate consideration is greater than or equal to $60,000; and (xiii) permit the consolidated fixed charge coverage ratio, which is to be determined for each quarter end on a trailing twelve month basis, to be less than 1.25 to 1.

The Restated Credit Agreement also contains customary events of default, including, but not limited to: (i) failure to pay amounts due under the Restated Credit Agreement; (ii) materially incorrect representations and warranties; (iii) failure to comply with covenants; (iv) change of control; and (v) default under other indebtedness aggregating at least $3,000.

The obligations of each Loan Party under the Restated Credit Agreement are guaranteed by each other Loan Party. All obligations under the Restated Credit Agreement, and the guarantees of those obligations (as well as banking services obligations and certain swap agreements), are secured by pledges and liens on 100% of the equity interests of domestic subsidiaries, either 100% or 65% of the equity interests of certain foreign subsidiaries, and the accounts receivable, inventory, intellectual property and certain real property or other assets of the Loan Parties pursuant to (i) a Pledge and Security Agreement, dated as of May 3, 2019, by and among certain of the Loan Parties and the Administrative Agent (as amended from time to time prior to the Effective Date, the “PSA”), (ii) a General Security Deed, dated as of August 30, 2021, by and among certain of the Loan Parties and the Administrative Agent (the “Oscar GSD”), (iii) a General Security Deed, dated as of January 31, 2022, by and among certain of the Loan Parties and the Administrative Agent (the “Simpson GSD”) or (iv) a mortgage or other applicable security agreement or instrument. Each of the PSA, the Oscar GSD and the Simpson GSD was reaffirmed by the Loan Parties on the Effective Date pursuant to a Reaffirmation Agreement dated as of the Effective Date by and among the Administrative Agent and the Loan Parties (the “Reaffirmation Agreement”) pursuant to which each Loan Party ratified and reaffirmed its obligations to the Lenders in connection with entering into the Restated Credit Agreement.

Off-Balance Sheet Arrangements

We do not engage in any transactions or have relationships or other arrangements with unconsolidated entities. These include special purpose and similar entities or other off-balance sheet arrangements. We also do not engage in energy, weather or other commodity-based contracts.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

There has not been any material change in the market risk disclosure contained in our Annual Report on Form 10-K for the year ended December 31, ~~2021.~~2022.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

The Company’s management carried out an evaluation, under the supervision and with the participation of the Company’s Executive Chairman and Chief Financial Officer, its principal executive officer and principal financial officer, respectively, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as such term is defined in Rules 13a-15I and 15d-15(e) under the Securities Exchange Act of 1934, as amended (“Exchange Act”)) as of March 31, ~~2022,~~2023, pursuant to Exchange Act Rule 13a-15. Such disclosure controls and procedures are designed to ensure that information required to be disclosed by the Company is accumulated and communicated to the appropriate management on a basis that permits timely decisions regarding disclosure. Based upon that evaluation, the Company’s Executive Chairman and Chief Financial Officer concluded that the Company’s disclosure controls and procedures as of March 31, ~~2022,~~2023, were effective.

On July 1, 2021, the Company completed the acquisition of Australia-based Rhino-Rack Holdings Pty Ltd (“Rhino-Rack”). On December 1, 2021, the Company completed the acquisition of Australia-based MaxTrax Australia Pty Ltd (“MAXTRAX”). Management excluded Rhino-Rack and MAXTRAX from its assessment of the effectiveness of the Company’s internal control over financial reporting as of March 31, 2022.

Changes in Internal Control over Financial Reporting

The Company acquired MAXTRAX and Rhino-Rack on December 1, 2021 and July 1, 2021, respectively. The Company is currently in the process of integrating the internal controls over financial reporting at MAXTRAX and Rhino-Rack. Except for the continued integration of MAXTRAX and Rhino-Rack, thereThere has been no change in our internal control over financial reporting that occurred during the ~~first quarter of 2022~~three months ended March 31, 2023, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

3129

CLARUS CORPORATION

PART II. OTHER INFORMATION

ITEM 1. LEGAL ~~PROCEEDINGS~~PROCEEDINGS

Legal Proceedings

The Company is involved in various legal disputes and other legal proceedings that arise from time to time in the ordinary course of business. Based on currently available information, the Company does not believe that the disposition of any of the legal disputes the Company or its subsidiaries is currently involved in will have a material adverse effect upon the Company’s consolidated financial condition, results of operations or cash flows. It is possible that, as additional information becomes available, the impact on the Company of an adverse determination could have a different effect.

Litigation

The Company is involved in various lawsuits arising from time to time that the Company considers ordinary routine litigation incidental to its business. Amounts accrued for litigation matters represent the anticipated costs (damages and/or settlement amounts) in connection with pending litigation and claims and related anticipated legal fees for defending such actions, which legal fees are expensed as incurred. The costs are accrued when it is both probable that a liability has been incurred and the amount can be reasonably estimated. The accruals are based upon the Company’s assessment, after consultation with counsel (if deemed appropriate), of probable loss based on the facts and circumstances of each case, the legal issues involved, the nature of the claim made, the nature of the damages sought and any relevant information about the plaintiffs and other significant factors that vary by case. When it is not possible to estimate a specific expected cost to be incurred, the Company evaluates the range of probable loss and records the minimum end of the range. Based on currently available information, the Company does not believe that it is reasonably possible that the disposition of any of the legal disputes the Company or its subsidiaries is currently involved in will have a material adverse effect upon the Company’s consolidated financial condition, results of operations or cash flows. There is a reasonable possibility of loss from contingencies in excess of the amounts accrued by the Company in the accompanying condensed consolidated balance sheets; however, the actual amounts of such possible losses cannot currently be reasonably estimated by the Company at this time. It is possible that, as additional information becomes available, the impact on the Company could have a different effect.

Product Liability

Based on current information, there are no pending product liability claims and lawsuits of the Company, which the Company believes in the aggregate, will have a material adverse effect on the Company’s consolidated financial position, results of operations or cash flows.

ITEM 1A. RISK ~~FACTORS~~

FACTORS

There have been no material changes in our risk factors from those disclosed in Part I, Item 1A. of the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2021.~~2022.

‎

3230

CLARUS CORPORATION

ITEM 6. EXHIBITS


Exhibit		Description
10.1		~~Amendment No. 4~~Employment Agreement, dated as of January 3, 2022, to that certain Credit Agreement, dated May 3, 2019, as amended by Amendment No. 1 dated May 28, 2019, and Amendment No. 2 dated November 12, 2020, and Amendment No. 3 dated July 1, 2021, by and amongMarch 14, 2023, between Clarus Corporation Black Diamond Retail, Inc., Black Diamond Retail – Alaska, LLC, Sierra Bullets, L.L.C., SKINourishment, LLC, Black Diamond Retail – Colorado, LLC, Black Diamond Retail – Montana, LLC, Barnes Bullets – Mona, LLC, and Black Diamond Retail – Wyoming, LLC, as borrowers, the other loan parties party thereto, JPMorgan Chase Bank, N.A., as administrative agent, U.S. Bank National Association, as syndication agent, Regions Bank and Bank of America, N.A., as co-documentation agents, JPMorgan Chase Bank, N.A., as sole bookrunner and sole lead arranger, and the other lenders from time to time party theretoWarren B. Kanders (filed as Exhibit ~~10.15~~10.1 to the Company’s ~~Annual~~Current Report on Form ~~10-K~~8-K filed ~~by the Company~~ with the Securities and Exchange Commission on March ~~7, 2022,~~16, 2023, and incorporated herein by reference).
10.2		~~Amended and Restated Credit~~Separation Agreement, dated ~~effective~~ as of ~~April 18, 2022, by and among~~March 31, 2023, between Clarus Corporation Black Diamond Retail, Inc., Black Diamond Retail – Alaska, LLC, Sierra Bullets, L.L.C., SKINourishment, LLC, Black Diamond Retail – Colorado, LLC, Black Diamond Retail – Montana, LLC, Black Diamond Retail – Wyoming, LLC, Barnes Bullets-Mona, LLC, Black Diamond Retail – Oregon, LLC, Black Diamond Retail – Vermont, LLC and ~~the other loan parties party thereto, JPMorgan Chase Bank, N.A., as administrative agent and the lenders party thereto~~John Walbrecht (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed ~~by the Company~~ with the Securities and Exchange Commission on April ~~21, 2022,~~4, 2023, and incorporated herein by reference).
31.1		Certification of Principal Executive Officer pursuant to Rule 13a-14(a) as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. *
31.2		Certification of Principal Financial Officer pursuant to Rule 13a-14(a) as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. *
32.1		Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. **
32.2		Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. **
101.INS		XBRL Instance Document *
101.SCH		XBRL Taxonomy Extension Schema Document *
101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document*
101.DEF		XBRL Taxonomy Extension Definition Linkbase Document *
101.LAB		XBRL Taxonomy Extension Label Linkbase Document *
101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document *
104		Cover Page Interactive Data File – formatted as Inline XBRL and contained in Exhibit 101
*		Filed herewith
**		Furnished herewith

‎

3331

CLARUS CORPORATION

SIGNATURES

Pursuant to the requirements of the Securities and Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


	CLARUS CORPORATION
Date: May ~~9, 2022~~1, 2023	By:	/s/ Warren B. Kanders
	Name:	Warren B. Kanders
	Title:	Executive Chairman
		(Principal Executive Officer)

Date: May ~~9, 2022~~1, 2023	By:	/s/ Michael J. Yates
	Name:	Michael J. Yates
	Title:	Chief Financial Officer
		(Principal Financial Officer and Principal Accounting Officer)

3432


	MAXTRAX			Rhino-Rack
	December 1, 2021			July 1, 2021
	Number of Shares	Estimated Fair Value		Number of Shares	Estimated Fair Value

Cash paid	-	$	26,780	-	$	143,590

Issuance of shares of Clarus Corporation	107		2,594	2,315		55,333

Future issuance of shares of Clarus Corporation	-		4,457	-		-

Contingent consideration	-		1,644	-		3,565

Total purchase consideration	107	$	35,475	2,315	$	202,488

Assets acquired and liabilities assumed
Assets
Cash		$	1,869		$	7,513
Accounts receivable			2,791			10,769
Inventories			1,819			27,046
Prepaid and other current assets			883			644
Property and equipment			139			4,619
Other intangible assets			10,341			55,400
Indefinite-lived intangible assets			10,555			72,800
Goodwill			15,199			78,347
Other long-term assets			979			11,468
Total assets			44,575			268,606

Liabilities
Accounts payable and accrued liabilities			2,176			16,511
Income tax payable			251			3,413
Current portion of long-term debt			-			607
Long-term debt			-			2,107
Deferred income taxes			5,863			32,451
Other long-term liabilities			810			11,029
Total liabilities			9,100			66,118

Net Book Value Acquired		$	35,475		$	202,488


	MAXTRAX				Rhino-Rack
			Average				Average
	Gross		Useful Life		Gross		Useful Life

Intangibles subject to amortization
Customer relationships	$	8,986		13.5 years	$	40,400		13.5 years
Product technologies		1,355		7.0 years		15,000		10.0 years
Intangibles not subject to amortization
Trademarks		10,555		N/A		72,800		N/A
	$	20,896		12.6 years	$	128,200		12.6 years


Years Ending December 31,	Amortization Expense
2022 (excluding the three months ended March 31, 2022)	$	11,946
2023		13,714
2024		11,543
2025		9,334
2026		7,188
Thereafter		17,602
	$	71,327


	Gains (losses) reclassified from AOCI to the Condensed Consolidated Statements of Comprehensive Income
Affected line item in the Condensed Consolidated	Three Months Ended
Statements of Comprehensive Income	March 31, 2022		March 31, 2021
Foreign exchange contracts:
Sales	$	253	$	(321)
Less: Income tax expense (benefit)		59		(75)
Amount reclassified, net of tax	$	194	$	(246)

Total reclassifications from AOCI	$	194	$	(246)


Number of options	343	10
Option vesting period	3 Years	Immediate
Grant price (per share)	$21.83 - $27.65	$21.83
Dividend yield	0.36% - 0.46%	0.46%
Expected volatility (a)	38.6% - 38.7%	39.40%
Risk-free interest rate	1.46% - 1.68%	1.66%
Expected life (years) (b)	6.00	5.50
Weighted average fair value (per share)	$8.24 - $10.41	$8.03